Mohegan Tribal Gaming Authority

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					MOHEGAN TRIBAL GAMING AUTHORITY
            2006 ANNUAL REPORT
RecoRd Revenues. RecoRd pRofits.
seamless leadeRship tRansition.
new gaming oppoRtunities. mtga’s
momentum continues.
A simple statement that, upon further review, is clearly the result of concerted efforts to sustain a set of values
and ideals. Of adhering to a sense of purpose and maintaining a clear perspective. Of respecting our employees
and traditions. 2006 was a very good year for the Mohegan Tribal Gaming Authority and our various enterprises.
We celebrated the 10th anniversary of our flagship entertainment enterprise, Mohegan Sun. We continue on an
unbroken path of success precisely because there is a commitment to a plan of action and an absolute dedication
to creating a secure future for our Tribal members.

This year’s annual report provides us with the opportunity to consider what contributes to driving our momentum:
Focus, Vision, Identity, Leadership and Diversification.
”
    You cannot depend on YouR eYes
    when YouR imagination is out of
    focus.
                                   ”     — M A Rk T WA I N




    without focus, all the momentum in the world is worthless.
    without focus, there is no direction.
    there is no clarity.
    no sense of purpose.
    no eye on the prize.
    without focus, all roads look the same.
    and some of those roads can be treacherous.


    We pride ourselves on understanding that we must maintain a clear focus on the fundamental values we hold
    so dear. Our Management Board and executive team have long nurtured and guided us, helping to sustain our focus.
    With their immeasurable support, Mohegan Sun has grown into one of the most profitable casinos and successful
    business entities in the world. The next generation of Tribal and executive leadership continues the tradition
    of helping us maintain focus on our business goals in 2007 and in the years to come.
”
    the Real voYage of discoveRY
    consists not in seeKing new
    landscapes, But in having
    new eYes.”                                               — M A R C E L P R O U S T




    vision is more than seeing things with different eyes.
    it’s about imagination.
    imagining an answer to the question, “what if?”
    allowing yourself to develop questions that scare you.
    shake your confidence.
    Question your experience and accumulated wisdom.
    and then doing something about it.



    Vision is really seeing. Imagining possibilities. Opportunities. Fresh realities. Where will the next gaming
    opportunity arise? How can we assist other Tribal Nations in achieving their goals and dreams?
    What can we do to make our patrons understand our commitment to their satisfaction?

    MTGA made great strides in imagining possibilities in 2006. We saw new gaming opportunities with
    the opening of Mohegan Sun at Pocono Downs. We’re reaching out to other Native American tribes,
    partnering with them to help them create their own financial freedom and success. We’re nurturing
    relationships with our employees and suppliers to better serve the millions of visitors to Mohegan Sun.
    We’re clear-eyed and ready for the future.
”
    the value of                              of identitY
    couRse is that so often with
    it comes puRpose. — R I C H A R D R . G R A N T
                                                                ”




    we are mohegan, the wolf people.
    But, who are we?
    how do we define who we are?
    as individuals.
    what traditions, languages and culture do we share?
    what will define us to future generations?
    we are mohegan, the wolf people.



    Discussing identity in an annual report may seem unusual, but isn’t the very existence of the Mohegan Tribal Nation
    and its flagship brand, Mohegan Sun, just that? Having struggled for federal recognition, imagined and crafted a
    world at play in one of the most beautiful casino destinations in the country and built a financial operation second
    to none, we are still reminded daily of who we are and what we have accomplished. More importantly, of what is at
    the core of our identity.

    With Mohegan Sun, we set out to create a place where the norm doesn't apply. Where the doors to fun and
    excitement are always open. Where the only obstacle is your own imagination. Where you are free to discover.
    Explore. Let yourself go. For nearly 500 years, on this very land, that’s exactly how we have lived.
    We invite you to join us. Wigwomun.
”
    leadeRs need to Be optimists.
    theiR vision is BeYond the pResent.
    — R U DY G I U L I A N I                                                                                        ”




    seeing tomorrow clearly.
    creating a path on which to travel.
    understanding people.
    finding ways to challenge and inspire them.
    encouraging them to grow personally.
    empowering them to succeed.
    guiding the enterprise through rough seas.



    Leadership comes in a variety of forms. But the heart of leadership is the power to inspire others, not merely to
    follow — but to run side by side. This occurs as a result of having clear vision and astute guidance. In 2006, MTGA
    enjoyed a seamless leadership transition when William J. Velardo stepped down after 11 years as President and CEO
    and Mitchell Etess assumed those roles and responsibilities, while Jeffrey E. Hartmann was elevated to the position
    of Chief Operating Officer.

    Our experienced and wise Management Board, led by Bruce "Two Dogs" Bozsum, brings valuable insight and counsel
    to the MTGA enterprise. We’re confident that the collective enthusiasm and optimism shared by the management
    team and the Management Board will serve MTGA well in the coming years.
”
    oppoRtunities
    multiplY as theY aRe seized.
    — S U N T zU
                                                                                                   ”




    Knowing what you know.
    understanding, on a deeper level, what it is you do, and do well.
    searching for new opportunities.
    grasping the right opportunities, not just any opportunity,
    and making them work.
    strengthening the brand, the company, the entire enterprise,
    by extending into fresh areas with a strategy for success.
    that’s diversification.



    Diversification has begun for MTGA. In September 2005, MTGA launched its $70 million expansion project
    at Mohegan Sun at Pocono Downs, the venerable harness race track facility in Northeastern Pennsylvania.

    On a more significant level however, was the introduction on November 14, 2006 of the first 1,100 slot machines
    in the Commonwealth of Pennsylvania at Pocono Downs. This is just the first step in bringing to life a very
    robust facility, with plans for 2,500 slots, 400,000 square feet of space for nightclubs, restaurants, a food court,
    and retail shops and to add more than 1,000 new jobs to the region. We anticipate Mohegan Sun at Pocono Downs
    will become the premier entertainment facility in Northeastern Pennsylvania.
                                                                                                                                Growth in 2007 will come from a new source: Mohegan Sun at Pocono Downs. In early November 2006, 1,100 slot machines
                                                                                                                                were installed at the venerable Wilkes-Barre, Pennsylvania racing facility, the first such machines ever offered in the
                                                                                                                                Commonwealth of Pennsylvania. The first weeks of operation have been rewarding and we are extremely encouraged that
                                                                                                                                our investment at Pocono Downs will be very successful.


                                                                                                                                Our ambitious Phase II plans at Pocono Downs include a stand-alone gaming facility with approximately 2,500 slot machines,
                                                                                                                                a wide range of dining options, including a 300-seat buffet and retail shopping. MTGA expects to open this new $140-million
                                                                                                                                facility by mid-2008.

LETTER TO OUR BONDHOLDERS AND EMPLOYEES                                                                                         The success of MTGA resulted from concerted efforts of many people. We are exceptionally proud of the great strides
                                                                                                                                made by our Management Board and executive management team, which have seamlessly transitioned from the excellent
                                                                                                                                leadership of the past to where we are today. We cannot say enough about the excellent hospitality provided by our employees.
The Mohegan Tribal Gaming Authority and its flagship property, Mohegan Sun, have reached new heights and achieved
                                                                                                                                From table games dealers and slot operations personnel to those who prepare our outstanding food offerings to those who
extraordinary momentum in 2006. With millions of casino patrons visiting our property, record revenue and profits, state
                                                                                                                                make sure our facility is spotless and tidy. All 9,500 play an important role – all make the Mohegan Tribal Gaming Authority
of the art facilities and dedicated staff, we’re confident that we are poised to sustain this growth and build upon it in the
                                                                                                                                work, and work well.
coming years.

                                                                                                                                On the banks of the Thames River in Uncasville, for 10 celebrated years, we have created a world at play. It is within that
MTGA’s net revenues for this fiscal year were a record $1.4 billion. Adjusted EBITDA of $383 million was also a record for
                                                                                                                                spirit of play that we bring you the highlights of our collective efforts for 2006.
the Authority. MTGA’s success was the result of an extraordinary year at Mohegan Sun. Our adjusted EBITDA margins
improved to 28.2% for the year ended September 30, 2006.


Not only were our financial results outstanding, we also scored high in other areas. Consider these 2006 milestones:
                                                                                                                                "Our vision is clear, our hopes are high, our momentum endures."
growth of ten percent in table games revenues; a five percent increase in our slot win; an increase in occupancy at the
Sky hotel; a 53% increase in entertainment revenues, made evident by the placement of the Mohegan Sun Arena as
10th in the world and 6th in the United States in the Pollstar Top 100 Arena Venues report for highest number of tickets
sold from January-September, 2006. All this is simply an extraordinary accomplishment.


Encouraged by this success, and inspired to create an entertainment destination like no other, our Management
Board has embarked on a challenging and exciting new venture, the next phase in the development of Mohegan Sun:                 Bruce “Two Dogs” Bozsum                                   Mitchell Grossinger Etess
Project Horizon. This $740 million project will add, among other things, a spectacular new 1,000-room hotel tower,              Chairman                                                  President & Chief Executive Officer
                                                                                                                                Mohegan Tribal Council/Management Board                   Mohegan Tribal Gaming Authority
and with it, a dynamic new partner in our offering of amenities, the House of Blues. By the early summer of 2010,
                                                                                                                                December 2006                                             December 2006
the project will be completed and our vision of Mohegan Sun as the premier entertainment destination in the
Northeast will be further established.
management BoaRd and eXecutive officeRs                                                                                                                                               financial highlights

                                                                                                                                                                                         $1,500                                                                            Net Revenues and Adjusted
                                                                                                                                                                                                                                                                           EBITDA* (in thousands)
                                                                                                                                                                                         $1,000
                                                                                                                                                                                                                                                                                       NET REVENUES
                                                                                                                                                                                         $750
                                                                                                                                                                                                                                                                                       ADJUSTED EBITDA*
                                                                                                                                                                                         $500

                                                                                                                                                                                         $250

                                                                                                                                                                                         $0
                                                                                                                                                                                                          2004               2005               2006

MOHEGAN TRIBAL GAMING AUTHORITY MANAGEMENT BOARD:
Bruce “Two Dogs” Bozsum, Chairman / Marilynn “Lynn” Malerba, Vice Chairwoman / Allison D. Johnson, Recording Secretary / Roberta Harris-Payne, Corresponding Secretary
William Quidgeon Jr., Treasurer / Mark F. Brown, Councilor / Ralph James Gessner Jr., Councilor / Mark W. Hamilton, Councilor / Roland J. Harris, Councilor



                                                                                                                                                                                                                                                                                                For the Fiscal Year Ended September 30,
                                                                                                                                                                                                                                                                         2004                          2005                      2006
                                                                                                                                                                                                                                                                                                                            (thousands)

                                                                                                                                                                                      Operating Results:
                                                                                                                                                                                        Gross revenues                                                            $     1,367,933               $     1,456,753            $       1,551,331
MOHEGAN TRIBAL GAMING AUTHORITY & MOHEGAN SUN EXECUTIVE OFFICERS:                                                                                                                       Promotional allowances                                                             111,007                       125,148                     124,917
Mitchell Grossinger Etess, President & Chief Executive Officer / Jeffrey E. Hartmann, Executive Vice President & Chief Operating Officer / Leo M. Chupaska, Chief Financial Officer
                                                                                                                                                                                        Net revenues                                                                   1,256,926                      1,331,605                   1,426,414
                                                                                                                                                                                        Income from operations                                                            246,617                       139,364                    249,379
                                                                                                                                                                                        Net income                                                                        102,887                        23,667                      154,917

                                                                                                                                                                                      Other Data:
                                                                                                                                                                                        Adjusted EBITDA*                                                                  344,127                       352,437                    382,518
                                                                                                                                                                                        Interest expense, net of capitalized interest                                      78,970                         88,011                    90,928
                                                                                                                                                                                        Capital expenditures                                                              30,680                         50,991                     101,920
MOHEGAN SUN EXECUTIVE OFFICERS:                                                                                                                                                         Net cash flows provided by operating activities                                   214,805                       247,075                    250,877
Gary S. Crowder, Senior Vice President of Resort Operations / Daniel Garrow, Senior Vice President of Information Systems & Chief Information Officer
Paul Munick, Senior Vice President of Sports & Entertainment / Anthony Patrone, Senior Vice President of Marketing / Ray Pineault, Senior Vice President of Administration
                                                                                                                                                                                      Balance Sheet Data:
                                                                                                                                                                                        Total assets                                                                    1,579,705                     1,856,868                   1,914,357
                                                                                                                                                                                        Long-term debt                                                                  1,003,051                     1,226,348                  1,225,804




MOHEGAN SUN AT POCONO DOWNS EXECUTIVE OFFICER:                                                                                                                                        * A discussion of Adjusted EBITDA and reconciliation of Adjusted EBITDA to net income is included on the following page of this annual report.
Robert J. Soper, President & Chief Executive Officer
financial highlights                                                          continued


Reconciliation of Adjusted EBITDA to Net Income                                                                                                                       FINANCIAL OVERVIEW
A reconciliation of Adjusted EBITDA to net income, a financial measure determined in accordance with accounting principles
generally accepted in the United States of America, or GAAP, is shown below (in thousands):
                                                                                                                                                                      BUSINESS                                                                                                                                                                                               18


                                                                                                               For the Fiscal Year Ended September 30,
                                                                                                                                                                      PROPERTIES                                                                                                                                                                                         23
                                                                                     2004                            2005                           2006

Adjusted EBITDA                                                               $     344,127                   $ 352,437                    $     382,518
Pre-opening costs and expenses                                                            –                        (1,257)                         (5,130)            MANAGEMENT’S DISCUSSION AND ANALYSIS
Depreciation and amortization                                                      (93,595)                      (87,678)                        (88,182)             OF FINANCIAL CONDITION AND RESULTS
                                                                                                                                                                      OF OPERATIONS                                                                                                                                                                                      23
Relinquishment liability reassessment                                                (3,897)                    (123,624)                       (39,407)
Accretion of discount to the relinquishment liability                              (29,939)                      (27,466)                       (30,707)
Interest income                                                                         232                           673                           2,245
Interest expense, net of capitalized interest                                      (78,970)                       (88,011)                      (90,928)              CONSOLIDATED FINANCIAL STATEMENTS                                                                                                                                                                  38
Loss on early extinguishment of debt                                                (34,138)                         (280)                              –
Other income (expense), net                                                            (933)                        (1,127)                       24,508

Net income                                                                    $ 102,887                        $ 23,667                     $    154,917



Adjusted EBITDA Explanation
Earnings before interest, income taxes, depreciation and amortization, or EBITDA, is a commonly used measure of performance in the casino and hospitality
industry. EBITDA is not a measure of performance calculated in accordance with GAAP. We have historically evaluated our operating performance with the
non-GAAP measure, Adjusted EBITDA, which as used in this annual report represents earnings before interest, income taxes, depreciation and amortization,
pre-opening costs and expenses, accretion of discount to the relinquishment liability and reassessment of the relinquishment liability to Trading Cove
Associates pursuant to a relinquishment agreement, loss on early extinguishment of debt and other non-operating income and expense.

Adjusted EBITDA provides an additional way to evaluate our operations and, when viewed with both our GAAP results and reconciliation to net income, we
believe that it provides a more complete understanding of our business than could be otherwise obtained absent this disclosure. Adjusted EBITDA is presented
solely as a supplemental disclosure because: (1) we believe it enhances an overall understanding of our past and current financial performance; (2) we believe
it is a useful tool for investors to assess the operating performance of the business in comparison to other operators within the casino and hospitality industry
since Adjusted EBITDA excludes certain items that may not be indicative of our operating results; (3) measures that are comparable to Adjusted EBITDA are
often used as an important basis for the valuation of casino and hospitality companies; and (4) we use Adjusted EBITDA internally to evaluate the performance
of our operating personnel and management and as a benchmark to evaluate our operating performance in comparison to our competitors.

The use of Adjusted EBITDA has certain limitations. Adjusted EBITDA should be considered in addition to, not as a substitute for or superior to, any GAAP
financial measure including net income (as an indicator of our performance) or cash flows provided by operating activities (as an indicator of our liquidity),
nor should it be considered as an indicator of our overall financial performance. Our calculation of Adjusted EBITDA is likely to be different from the calculation
of EBITDA or other similarly titled measurements used by other casino and hospitality companies and therefore comparability may be limited. Adjusted EBITDA
eliminates certain substantial recurring items from net income, such as depreciation and amortization, interest expense and the reassessment and accretion
of discount to the relinquishment liability as described above. Each of these items has been incurred in the past, will continue to be incurred in the future and
should be considered in the overall evaluation of our results. We compensate for these limitations by providing the relevant disclosure of depreciation and
                                                                                                                                                                      References in this Annual Report to the “Authority” and the “Tribe” are to the Mohegan Tribal Gaming Authority and the Mohegan Tribe of Indians of Connecticut, respectively. The terms “we,”
amortization, interest expense, reassessment and accretion of discount to the relinquishment liability and other items excluded in the calculation of Adjusted        “us” and “our” refer to the Authority.
EBITDA both in our reconciliation to the GAAP financial measure of net income and in our consolidated financial statements, all of which should be considered
                                                                                                                                                                      This Annual Report is summary material only. Any potential investor in any securities of the Authority should read our Form 10-k for the fiscal year ended September 30, 2006 in its entirety
when evaluating our results. We strongly encourage investors to review our financial information in its entirety and not to rely on a single financial measure.
                                                                                                                                                                      as filed with the Securities and Exchange Commission.
A reconciliation of Adjusted EBITDA to net income is included above.
                                                                                                                                                                      Some statements contained in the Annual Report are, or may be deemed to be, forward-looking statements, which can sometimes be identified by forward-looking words such as “may,” “will,”
                                                                                                                                                                      “anticipate,” “estimate,” “expect,” ”intend” or other similar words or phrases. Any forward-looking statements are made only as of the date of the Annual Report and actual results could differ
                                                                                                                                                                      materially from those expressed in these statements. Additional information concerning potential factors that could affect our future results is included in the “Cautionary Note Regarding
                                                                                                                                                                      Forward-Looking Statements” included in our Form 10-k for the fiscal year ended September 30, 2006.




                                                                                                                                                                                                                                                                                                                                                                      17 |
   BUSINESS                                                                                                                                                          PROJECT HORIzON
                                                                                                                                                                     On November 16, 2006, we announced our plans for an estimated $740.0 million expansion at Mohegan Sun named Project Horizon. This expansion is
   OVERVIEW                                                                                                                                                          expected to include a new 1,000-room hotel, including 300 House of Blues-themed hotel rooms and a 7,500-square-foot House of Blues Foundation Room,
                                                                                                                                                                     which will be owned and operated by Mohegan Sun. The hotel is expected to open in two phases – the 700 Mohegan Sun rooms are expected to open in the
   The Mohegan Tribe of Indians of Connecticut, or the Mohegan Tribe or the Tribe, is a federally recognized Indian tribe with an approximately 507-acre
                                                                                                                                                                     spring of 2010 and the 300 House of Blues rooms are expected to open in the summer of 2010.
   reservation situated in southeastern Connecticut, located in Uncasville, Connecticut. Under the Indian Gaming Regulatory Act of 1988, or IGRA, federally
   recognized Indian tribes are permitted to conduct full-scale casino gaming operations on tribal lands, subject to, among other things, the negotiation of         We plan to connect the new hotel tower to the Sky hotel at Mohegan Sun as well as the winter section of the Casino of the Earth with approximately 115,000
   a gaming compact with the state in which they operate. The Tribe and the State of Connecticut have entered into such a compact, the Mohegan Compact,              square feet of new retail and restaurant space, including a new Japanese restaurant, an American contemporary restaurant and a new family-style Italian
   which has been approved by the United States Secretary of the Interior. We were established as an instrumentality of the Tribe, with the exclusive power          restaurant. The new restaurant area is expected to be complemented by approximately 40,000 square feet of new retail space and a 30,000 square-foot
   to conduct and regulate gaming activities on tribal lands and the non-exclusive authority to conduct such activities elsewhere. Our gaming operation at           recreation lounge featuring bowling and billiards. This expansion also is expected to include a new 1,500 person capacity House of Blues Music Hall and
   Mohegan Sun is one of only two legally authorized gaming operations in New England offering traditional slot machines and table games. Through our                a new 300 seat casual dining House of Blues restaurant. All of these components are scheduled to open in the fall of 2009.
   subsidiary, Downs Racing, L.P., we also own Mohegan Sun at Pocono Downs, or Pocono Downs, a gaming and entertainment facility offering slot machines
   and harness racing in Plains Township, Pennsylvania, as well as five off-track wagering, or OTW, facilities located elsewhere in Pennsylvania. We are             Project Horizon also is expected to expand the amenities offered to the Asian clientele at Mohegan Sun, including a new 5,000-square-foot bus lobby,
   governed by a nine-member Management Board, whose members also comprise the Mohegan Tribal Council (the governing body of the Tribe). Any change                  a 4,000-square-foot “Hong kong” Street food outlet and 12,000-square-feet of gaming space offering 46 table games such as Baccarat, Sic Bo and Pai Gow
   in the composition of the Mohegan Tribal Council results in a corresponding change in our Management Board.                                                       Poker. These new Asian gaming amenities in the Casino of the Earth are scheduled to open in the summer of 2007.

                                                                                                                                                                     A new gaming area that we plan to refer to as the Casino of the Wind also is expected to be developed and located adjacent to the Casino of the Sky. This
   MOHEGAN SUN                                                                                                                                                       new area is expected to include approximately 42,000 square feet of gaming space with over 900 slot machines, 10 table games and a specially-themed
                                                                                                                                                                     House of Blues poker room with 45 tables (operated by Mohegan Sun), as well as approximately 20,000-square-feet of new dining and retail amenities.
   In October 1996, we opened a gaming and entertainment complex known as Mohegan Sun. Mohegan Sun is located on a 240-acre site on the Tribe’s
                                                                                                                                                                     The Casino of the Wind is scheduled to open in the spring of 2008.
   reservation overlooking the Thames River with direct access from Interstate 395 and Connecticut Route 2A via a four-lane access road. Mohegan Sun
   is approximately 125 miles from New York City and approximately 100 miles from Boston, Massachusetts. In fiscal year 2002, we completed a major                   With significant construction set to begin in the summer of 2007, Project Horizon is expected to add more than 1.2 million square feet of hotel rooms, gaming
   expansion of Mohegan Sun known as Project Sunburst. The first phase of Project Sunburst, the Casino of the Sky, which included increased gaming,                  space and other new amenities to Mohegan Sun. The total number of slot machines at Mohegan Sun is projected to increase to approximately 7,600 units,
   restaurant and retail space and an entertainment arena, opened in September 2001. The remaining components, including an approximately 1,200-room                 complemented by approximately 385 table games in total after the expansion. Project costs are estimated to be incurred as follows: fiscal year 2007 $134.0
   luxury hotel and approximately 100,000 square feet of convention space, were fully opened in June 2002.                                                           million, fiscal year 2008 $269.0 million, fiscal year 2009 $242.0 million and fiscal year 2010 $95.0 million.
   Mohegan Sun operates in an approximately 3.0 million square foot facility, which includes the following two casinos:
                                                                                                                                                                     CONNECTICUT SUN
   CASINO OF THE EARTH                                                                                                                                               In January 2003, we formed a wholly owned subsidiary, the Mohegan Basketball Club LLC, or MBC, for the purpose of owning and operating a professional
   The Casino of the Earth has approximately 179,500 square feet of gaming space and offers:                                                                         basketball team in the Women’s National Basketball Association, or WNBA. MBC entered into a membership agreement with the WNBA permitting it to
                                                                                                                                                                     operate the Connecticut Sun basketball team. The team plays its home games in the Mohegan Sun Arena.
       • approximately 3,800 slot machines and 195 table games (including blackjack, roulette, craps and baccarat);
       • food and beverage amenities, including the Uncas American Indian Grill, a 285-seat full-service restaurant and bar that opened in July 2005,                MOHEGAN GOLF
         three full-service themed fine dining restaurants, with a fourth area featuring cuisine from all three adjacent restaurant themes, a 610-seat buffet,
                                                                                                                                                                     In November 2006, we formed a wholly owned subsidiary, Mohegan Golf, LLC, or Mohegan Golf, to purchase, own and operate a golf course in southeast
         a ten-station food court featuring international and domestic cuisine and multiple service bars, all operated by us, for a current total of approximately   Connecticut. On November 21, 2006, Mohegan Golf entered into an agreement to purchase assets owned by Pautipaug Country Club, Incorporated, including
         1,700 restaurant seats;                                                                                                                                     a golf course and related facilities on land located in Sprague and Franklin, Connecticut, for $4.4 million. Closing of the acquisition is pending the seller’s
       • an approximately 10,000 square foot, 410-seat lounge featuring live entertainment seven days a week;                                                        satisfaction of certain conditions.
       • an approximately 11,000 square foot simulcasting race book facility; and
       • four retail shops providing shopping opportunities ranging from Mohegan Sun logo souvenirs to cigars.                                                       MOHEGAN SUN AT POCONO DOWNS
                                                                                                                                                                     On January 25, 2005, we and our wholly owned subsidiary, Mohegan Commercial Ventures PA, LLC, or MCV-PA, acquired all of the partnership interests
   CASINO OF THE SkY                                                                                                                                                 in Downs Racing, L.P., or Downs Racing, Mill Creek Land, L.P., Backside, L.P. and Northeast Concessions, L.P., or the Pocono Downs entities, from
   The Casino of the Sky has approximately 119,000 square feet of gaming space and offers:                                                                           subsidiaries of Penn National Gaming, Inc. Downs Racing owns the slot machine and harness racing facility known as Mohegan Sun at Pocono Downs
                                                                                                                                                                     located on approximately 400 acres in Plains Township, Pennsylvania as well as five Pennsylvania OTWs located in Carbondale, East Stroudsburg,
       • approximately 2,400 slot machines and 120 table games (including blackjack, roulette, craps and baccarat);                                                  Erie, Hazleton and Lehigh Valley (Allentown). Harness racing has been conducted at Pocono Downs since 1965. The Lehigh Valley (Allentown) OTW
       • food and beverage amenities, including two full-service restaurants, two quick-service restaurants, a 24-hour coffee shop, a 320-seat buffet                is a 28,000 square-foot facility and is the largest OTW in the Commonwealth of Pennsylvania.
         and five lounges and bars operated by us, as well as four full-service restaurants, three quick-service restaurants and a multi-station food court          Downs Racing completed the 2006 harness racing season at Pocono Downs in November 2006 and will continue the harness racing activities when
         operated by third parties, for a total of approximately 2,600 restaurant seats;                                                                             the 2007 racing season begins in April 2007. Year round simulcast pari-mutuel wagering activities also are conducted at Mohegan Sun at Pocono Downs
       • Mohegan After Dark, consisting of a nightclub, a lounge and a pub, all operated by a third party;                                                           and the OTW facilities. A new state of the art, pari-mutuel simulcast facility at Mohegan Sun at Pocono Downs was opened to the public in March 2006.
       • the Mohegan Sun Arena with seating for up to 10,000;                                                                                                        On August 7, 2006, we entered into an amendment of the Pocono Downs purchase agreement with the seller, a subsidiary of Penn National Gaming, Inc.
       • a 350-seat Cabaret;                                                                                                                                         Pursuant to the amendment, in exchange for our agreement to modify certain provisions of the purchase agreement, including the elimination of our post-
                                                                                                                                                                     closing termination rights, we will receive an aggregate refund of $30.0 million of the original purchase price for the Pocono Downs entities, payable in five
       • The Shops at Mohegan Sun containing 29 different retail shops, seven of which we own;
                                                                                                                                                                     annual installments of $7.0 million, $7.0 million, $6.5 million, $6.0 million and $3.5 million on November 14, 2007, 2008, 2009, 2010 and 2011, respectively.
       • an approximately 1,200-room luxury hotel with a private high limit table games suite on the 36th floor;
                                                                                                                                                                     In September 2006, a Conditional Category One Slot Machine License was granted to Downs Racing by the Pennsylvania Gaming Control Board, or the PGCB,
       • an approximately 20,000 square foot spa operated by a third party;                                                                                          for the operation of slot machines at Mohegan Sun at Pocono Downs. The PGCB awarded a permanent Category One slot machine license to Downs Racing
       • approximately 100,000 square feet of convention space; and                                                                                                  on December 20, 2006. This license initially permits Downs Racing to install and operate up to 3,000 slot machines at Mohegan Sun at Pocono Downs.
       • a child care facility and an arcade style entertainment area operated by a third party.                                                                     A minimum of 1,500 slot machines are required to be in operation within 12 months of the issuance of the conditional slot machine license, unless otherwise
                                                                                                                                                                     extended by the PGCB for an additional period not to exceed 24 months. Downs Racing plans to request such an extension from the PGCB as a result of the
   Mohegan Sun has parking spaces for approximately 13,000 guests and 3,100 employees. In addition, we operate a gasoline and convenience center,                    Phase II development plans described below. Under certain circumstances, Downs Racing may be permitted to install up to a total of 5,000 slot machines
   an approximately 4,000 square foot, 20-pump facility located adjacent to Mohegan Sun.                                                                             at Pocono Downs.




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   After the satisfaction of certain regulatory conditions and the payment of a one-time slot machine license fee of $50.0 million to the PGCB in October 2006,         STRATEGY
   Downs Racing was the first to offer slot machine gaming in the Commonwealth of Pennsylvania when a Phase I gaming and entertainment facility opened
                                                                                                                                                                        Our overall strategy is to profit from expanding demand in the gaming market in our market areas as well as to diversify the Tribe’s business interests in
   to the public on November 14, 2006. The total cost for development of the Phase I facility is expected to be approximately $72.6 million, exclusive of the
                                                                                                                                                                        the gaming industry outside of Mohegan Sun, as discussed above. Mohegan Sun’s initial success has resulted primarily from patronage from guests residing
   $50.0 million one-time slot machine license fee. The two-level casino includes 90,000 square feet of gaming space, operates 24 hours a day, seven days
                                                                                                                                                                        within 100 miles of Mohegan Sun, which represents our primary market. We have also enjoyed additional patronage from guests residing within a 100 to 200
   a week and houses approximately 1,100 new slot machines with denominations ranging from one cent to $25. The facility also offers two casino bars, a food
                                                                                                                                                                        mile radius of Mohegan Sun, which represents our secondary market. Based upon Mohegan Sun’s results and experience, we believe the gaming market in
   court and a retail shop.
                                                                                                                                                                        our market areas continues to be strong. With the completion of Project Sunburst in 2002, we have developed Mohegan Sun into a full-scale entertainment
   A Phase II gaming and entertainment facility at Mohegan Sun at Pocono Downs is planned for development on land adjacent to the existing gaming location.             and destination resort, which has led to increases in the number of guests and lengthened the duration of their stays at our facility. We believe our Project
   When completed, the combined facility is anticipated to include approximately 2,500 slot machines, a variety of restaurants, a 300 seat buffet, an expanded          Horizon expansion also will enable us to further strengthen our position in the northeastern gaming market by capitalizing on the increasing demand for
   food court, retail shopping, nightlife venues, additional parking and bus amenities. Construction is expected to commence in the spring of 2007 with a grand         gaming and non-gaming amenities and providing a premier destination resort that will mitigate impacts from future competition.
   opening planned in the summer of 2008. Development of the Phase II facility is anticipated to cost between $140.0 million and $150.0 million.
                                                                                                                                                                        With the opening of the Mohegan Sun at Pocono Downs slot machine facility in November 2006, we have taken a significant step in our diversification
                                                                                                                                                                        efforts. After the completion of the Phase II slot machine facility at Mohegan Sun at Pocono Downs expected in the summer of 2008, we believe we will
   OTHER DIVERSIFICATION PROJECTS                                                                                                                                       have another first class gaming and entertainment destination in our property portfolio that will enable us to profit from a new gaming market outside
   The Tribe has determined that it is in its long-term best interest to pursue diversification of its business interests, both directly and through us. As a result,   of Mohegan Sun.
   from time to time, we and the Tribe receive and evaluate various business opportunities. These opportunities primarily include the management or ownership
   of, or investment in, other gaming enterprises through direct investments, acquisitions, joint venture arrangements and loan transactions. In addition to the        MARkET AND COMPETITION FROM OTHER GAMING OPERATIONS
   developments described below, we and the Tribe are currently exploring other opportunities, although there is no assurance that we or the Tribe will continue
                                                                                                                                                                        Mohegan Sun and Foxwoods Resort Casino, or Foxwoods, are the only two legally authorized gaming operations offering both traditional slot machines
   to pursue any of these other opportunities or that any of them will be consummated.
                                                                                                                                                                        and table games in New England. Foxwoods, operated by the Mashantucket Pequot Tribe under procedures approved by the United States Department of
                                                                                                                                                                        the Interior, is located approximately 10 miles from Mohegan Sun and is currently the largest gaming facility in the United States in terms of total gaming
   COWLITz PROJECT                                                                                                                                                      positions. Based on the size and success of Foxwoods and the rapid growth of Mohegan Sun, we believe that the gaming market in New England and our
   In July 2004, we formed Mohegan Ventures-Northwest, LLC, or Mohegan Ventures-NW, one of three members in Salishan-Mohegan LLC, or Salishan-Mohegan.                  remaining market area remains underserved.
   Salishan-Mohegan was formed to participate in the development and management of a casino to be located in Clark County, Washington, or the Cowlitz                   The existing gaming industry in our market area is highly competitive. Mohegan Sun currently competes primarily with Foxwoods, which has been in
   Project. The proposed casino would be owned by the Cowlitz Indian Tribe. The Mohegan Tribe is also a member of Salishan-Mohegan. Currently, Mohegan                  operation for approximately fourteen years and may have greater financial resources and operating experience than us.
   Ventures-NW holds a 49.15% membership interest, the Mohegan Tribe holds a 7.85% membership interest and Salishan Company, LLC, or Salishan
   Company, holds a 43.0% membership interest in Salishan-Mohegan. Mohegan Ventures-NW and the Mohegan Tribe each hold one of four seats on the                         Since the completion of Project Sunburst in 2002, we have broadened Mohegan Sun’s target market beyond day-trip customers to include guests making
   Board of Managers of Salishan-Mohegan.                                                                                                                               overnight stays at the resort. Consequently, Mohegan Sun also now competes directly for customers with resort casinos in Atlantic City, New Jersey.
                                                                                                                                                                        Some of these casinos have greater resources, operating experience and name recognition than Mohegan Sun.
   In September 2004, Salishan-Mohegan entered into development and management agreements with the Cowlitz Indian Tribe regarding the Cowlitz Project.
   Under the terms of the development agreement, Salishan-Mohegan administers and oversees the planning, designing, development, construction, and                      Under current law, outside of Atlantic City, New Jersey, full-scale commercial casino gaming in the northeastern United States may be conducted only by
   furnishing, as well as providing assistance with the financing, of the Cowlitz Project. The development agreement provides for certain development fees              federally recognized Indian tribes operating under federal Indian gaming laws or on cruise ships in international waters. In recent years, there has been an
   of 3% of total Project Costs, as defined in the development agreement, which are payable to Mohegan Ventures–NW and the Mohegan Tribe through                        increase in the number of Indian tribes seeking to engage in commercial casino gaming, including full-scale commercial casinos, in the northeastern United
   Salishan-Mohegan pursuant to the operating agreement. As of April 2006, Salishan-Mohegan purchased the land to be used as the site for the planned                   States and in the number of individual groups seeking to obtain federal recognition as Indian tribes so that they may engage in commercial casino gaming
   casino, which will be assigned to the Cowlitz Indian Tribe under certain conditions in the development agreement. The management agreement is for a                  in the northeastern United States. Under federal law, after obtaining federal recognition and before gaming operations may commence, a tribe must, among
   period of seven years commencing with the opening of the planned casino, during which Salishan-Mohegan will manage, operate and maintain the planned                 other things, have land taken into trust by the federal government, negotiate a gaming compact with the state in which they intend to engage in commercial
   casino. The management agreement provides for a management fee of 24% of Net Revenues, as defined in the management agreement, which approximates                    casino gaming, adopt a tribal gaming ordinance and construct a facility. A tribe may also need to negotiate a gaming management agreement and obtain
   net income from the Cowlitz Project. Pursuant to the operating agreement, management fees will be allocated to the members of Salishan-Mohegan based                 funding to construct a facility. As described below, many Indian tribes and individual groups seeking to gain federal recognition as Indian tribes are pursuing
   on their respective membership percentages. Development of the Cowlitz Project is subject to certain governmental and regulatory approvals, including, but           commercial casino gaming in the northeastern United States.
   not limited to, negotiating a gaming compact with the State of Washington and the United States Department of the Interior accepting land into trust
                                                                                                                                                                        A number of states, including Maine, Massachusetts, Rhode Island and New York, have considered legalizing one or more forms of commercial casino
   on behalf of the Cowlitz Indian Tribe. The management agreement is subject to approval by the National Indian Gaming Commission, or the NIGC.
                                                                                                                                                                        gaming in one or more locations. We also face existing and future competition in the immediate Pennsylvania gaming market. Based on internal analysis
   On August 4, 2006, we purchased a 5.0% membership interest in Salishan-Mohegan from Mohegan Ventures-NW and sold such 5.0% interest to the                           of the existing and potential gaming market in our market areas, we believe that competition from other commercial casino gaming operations will continue
   Mohegan Tribe for approximately $351,000. Mohegan Ventures-NW now holds a 49.15% interest in Salishan-Mohegan. We designated Mohegan Ventures-NW                     to increase in the future.
   as a restricted subsidiary under our bank credit facility and certain of the indentures relating to our senior and senior subordinated notes. On August 4, 2006,
                                                                                                                                                                        We are unable to predict whether any of the efforts by other federally recognized Indian tribes or individual groups attempting to gain federal recognition
   Mohegan Ventures-NW became a guarantor of our debt obligations under the bank credit facility and certain of our senior and senior subordinated notes.
                                                                                                                                                                        as Indian tribes or legalization of commercial casino gaming by non-Indians will lead to the establishment of additional commercial casino gaming operations
   On October 17, 2006, Salishan-Mohegan entered into a $25.0 million revolving loan agreement with Bank of America (the “Salishan Credit Facility”). The               in the northeastern United States. If established, we are uncertain of the impact such commercial casino gaming operations will have on our operations
   obligations of Salishan-Mohegan under the Salishan Credit Facility are guaranteed by the Mohegan Tribe. In exchange for the Mohegan Tribe’s guarantee                and our ability to meet our financial obligations.
   of the Salishan Credit Facility, a 2.85% membership interest in Salishan-Mohegan was transferred from Salishan Company to the Mohegan Tribe on October
   17, 2006. Immediately following the execution of the loan agreement, $10.0 million in loan proceeds were used by Salishan-Mohegan to provide a partial
   repayment of its outstanding loan balance with Mohegan Ventures-NW.


   MENOMINEE PROJECT
   In October 2004, we entered into a management agreement with the Menominee Indian Tribe of Wisconsin, or the Menominee Tribe, and the Menominee
   kenosha Gaming Authority. The terms of the management agreement grant us the exclusive right and obligation to manage, operate and maintain a planned
   casino and destination resort to be located in kenosha, Wisconsin, or the Menominee Project, for a period of seven years commencing with the opening
   of the planned casino, in consideration of a management fee of 13.4% of Net Revenues, as defined in the management agreement, which approximates net
   income earned from the Menominee Project. The management agreement is subject to approval by the NIGC.




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   MOHEGAN TRIBE OF INDIANS OF CONNECTICUT                                                                                                                            PROPERTIES
                                                                                                                                                                      Mohegan Sun is located on 240 acres of the Tribe’s approximately 507-acre reservation just outside of Uncasville, Connecticut, approximately one mile
   GENERAL                                                                                                                                                            from the interchange of Interstate 395 and Connecticut Route 2A. The land located in southeastern Connecticut upon which Mohegan Sun is situated is
   The Tribe has lived in a cohesive community for hundreds of years in what is today southeastern Connecticut, and became a federally recognized Indian              held in trust for the Tribe by the United States. Mohegan Sun has its own exit from Route 2A, giving patrons direct access to Interstate 395 and Interstate 95,
   tribe in 1994. The Tribe currently has approximately 1,700 members including 1,000 adult voting members. The Tribe historically has cooperated with the            the main highways connecting Boston, Providence and New York City. By highway, Mohegan Sun is approximately 125 miles from New York City, New York,
   United States and is proud of the fact that members of the Tribe have fought on the side of the United States in every war from the Revolutionary War to           100 miles from Boston, Massachusetts, 45 miles from Hartford, Connecticut and 50 miles from Providence, Rhode Island.
   the War in Iraq. The Tribe believes that this philosophy of cooperation exemplifies its approach to developing Mohegan Sun and pursuing diversification
   of its business interests.                                                                                                                                         We have a lease with the Tribe for land on which Mohegan Sun is located. The initial term of the lease is 25 years, with an option to renew for one additional
                                                                                                                                                                      25-year term provided that we are not in default under the lease. The lease also provides that all improvements constructed on the site will become the
   Although the Tribe is a sovereign entity, it has sought to work with, and to gain the support of, local communities in establishing Mohegan Sun. For example,      property of the Tribe. The lease is a net lease requiring that we assume all costs of operating, constructing, maintaining, repairing, replacing and insuring
   the Tribe settled its claim to extensive tracts of land that had been guaranteed by various treaties in consideration for certain arrangements in the Mohegan      the leased property, in addition to the payment of a nominal annual rental fee.
   Compact. As a result, local residents and businesses whose property values had been clouded by this dispute were able to gain clear title to their property.
   In addition, the Tribe has been sensitive to the concerns of the local community in developing Mohegan Sun. This philosophy of cooperation has enabled             We have entered into various lease agreements for properties adjacent to Mohegan Sun. The properties are owned by MTIC Acquisitions, L.L.C.,
   the Tribe to build a solid alliance among local, state and federal officials to achieve its goal of building Mohegan Sun.                                          a Connecticut limited liability company controlled by the Tribe. The properties are used for providing access and/or parking for Mohegan Sun.

                                                                                                                                                                      In connection with the purchase of the Pocono Downs entities, we acquired Pocono Downs, a harness racing facility located on approximately 400 acres
   MOHEGAN TRIBAL GAMING AUTHORITY                                                                                                                                    of land in Plains Township, Pennsylvania. The harness racing facility is currently one of only two harness racetracks in Pennsylvania and one of only four
                                                                                                                                                                      thoroughbred and harness racing facilities in the state. It has a 5/8 mile all-weather, lighted track with seating for approximately 3,500 and parking
   We were established by the Tribe in July 1995 with the exclusive power to conduct and regulate gaming activities on tribal lands for the Tribe and the
                                                                                                                                                                      capacity for approximately 6,500. Mohegan Sun at Pocono Downs, the first slot machine facility in the Commonwealth of Pennsylvania, was opened at
   non-exclusive authority to conduct such activities elsewhere. We are governed by a nine-member Management Board, consisting of the same nine
                                                                                                                                                                      the Pocono Downs racetrack in November 2006. In addition, we also acquired the OTW facilities located in Carbondale, Erie and Lehigh Valley (Allentown),
   members of the Tribal Council (the governing body of the Tribe). Any change in the composition of the Tribal Council results in a corresponding change
                                                                                                                                                                      and we lease the East Stroudsburg and Hazleton facilities. The Lehigh Valley (Allentown) OTW is a 28,000 square-foot facility and is the largest OTW in
   in our Management Board.
                                                                                                                                                                      the Commonwealth of Pennsylvania.
   We have three major functions. The first major function is to direct the operation, management and promotion of gaming enterprises on tribal lands
                                                                                                                                                                      Prior to our acquisition of the Pocono Downs entities, Penn National Gaming Inc., the former owner of the Pocono Downs entities, entered into an agreement
   and all related activities. The second major function is to regulate gaming activities on tribal lands. Our Management Board has appointed an independent
                                                                                                                                                                      to sell all of the assets associated with the OTW facility located in Erie, Pennsylvania to MTR Gaming Group, Inc., or MTR, and Presque Isle Downs Inc., or
   Director of Regulation to be responsible for the regulation of gaming activities at Mohegan Sun. The Director of Regulation serves at the will of the
                                                                                                                                                                      PID, and collectively with MTR, Presque Isle, for $7.0 million. Penn National Gaming Inc. assigned its rights under this agreement to our subsidiary, Downs
   Management Board and ensures the integrity of the gaming operation through the promulgation and enforcement of appropriate regulations. The Director
                                                                                                                                                                      Racing, L.P., upon our acquisition of the Pocono Downs entities. Accordingly, Presque Isle will be required to make the $7.0 million payment to Downs
   of Regulation and his staff also are responsible for performing background investigations and licensing of non-gaming employees as well as vendors
                                                                                                                                                                      Racing, L.P. upon the occurrence of either of the following two conditions: (1) the commencement by any of the Presque Isle entities of pari-mutuel wagering
   seeking to provide non-gaming products or services within the casino. Pursuant to the Mohegan Compact, the State of Connecticut is responsible for
                                                                                                                                                                      in Erie, Pennsylvania or (2) the receipt by any Presque Isle entity of revenue from slot machine operations in Erie, Pennsylvania. If the receipt of slot machine
   performing background investigations and licensing of gaming employees as well as gaming vendors seeking to provide gaming products or services
                                                                                                                                                                      revenues triggers the $7.0 million payment, then MTR has the right to delay such $7.0 million payment until the earlier to occur of (i) the first anniversary
   within the casino. The third major function is to identify and evaluate various diversification opportunities in conjunction with the Tribe. These opportunities
                                                                                                                                                                      of the first receipt of revenue from slot machine operations or (ii) the commencement by any of the Presque Isle entities of pari-mutuel wagering in Erie,
   primarily include the management and ownership of, or investments in, other gaming enterprises through direct investment, acquisition, joint venture
                                                                                                                                                                      Pennsylvania. After receipt of the $7.0 million payment, Downs Racing, L.P. will be required to discontinue its OTW operations in Erie, Pennsylvania and
   arrangements and loan transactions.
                                                                                                                                                                      convey the Erie OTW facility to Presque Isle as soon as commercially reasonable. The PGCB granted a conditional license to PID in October 2006 to operate
                                                                                                                                                                      slot machines at Presque Isle Downs in Erie County, Pennsylvania, which is scheduled to open in February 2007.
   GOVERNMENT REGULATION
                                                                                                                                                                      Salishan-Mohegan owns land in Clark County, Washington for the purposes of developing a casino to be owned by the Cowlitz Indian Tribe. Mohegan
   GENERAL                                                                                                                                                            Ventures-NW is a wholly-owned subsidiary of the Authority. The rights to the land shall be assigned to the Cowlitz Indian Tribe upon: (1) receipt of necessary
                                                                                                                                                                      financing for the development of the proposed casino; and (2) the underlying property being taken into trust by the United States Department of the Interior.
   Our operations at Mohegan Sun are subject to certain federal, state and tribal laws applicable to both commercial relationships with Indians generally and
   to Indian gaming and the management and financing of Indian casinos specifically. In addition, our operations there, as well as our slot machine operations        In November 2006, we formed Mohegan Golf to purchase, own and operate a golf course in southeast Connecticut. On November 21, 2006, Mohegan Golf
   in Pennsylvania at Mohegan Sun at Pocono Downs, are subject to federal and state laws applicable to the gaming industry generally and to the distribution          entered into an agreement to purchase assets owned by Pautipaug Country Club, Incorporated, including a golf course and related facilities on land located
   of gaming equipment. Our operations at Mohegan Sun at Pocono Downs also are subject to Pennsylvania laws and regulations applicable to harness racing              in Sprague and Franklin, Connecticut, for $4.4 million. Closing of the acquisition is pending the seller’s satisfaction of certain conditions.
   and simulcasting as well as the slot machine gaming we have recently commenced there. The following description of the regulatory environment in which
   gaming takes place and in which we operate is only a summary and not a complete recitation of all applicable law. Moreover, since this regulatory
   environment is susceptible to changes in public policy considerations, it is impossible to predict how particular provisions will be interpreted from              MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
   time to time or whether they will remain intact. Changes in such laws could have a material adverse impact on our operations.
                                                                                                                                                                      EXPLANATION OF kEY FINANCIAL STATEMENT CAPTIONS
   TRIBAL LAW AND LEGAL SYSTEMS
                                                                                                                                                                      GROSS REVENUES
   APPLICABILITY OF STATE AND FEDERAL LAW                                                                                                                             Our gross revenues are derived primarily from the following four sources:
   Federally recognized Indian tribes are independent governments, subordinate to the United States, with sovereign powers, except as those powers may
                                                                                                                                                                        • gaming revenues, which include revenues from slot machines, table games, keno, live harness racing at Pocono Downs and racebook
   have been limited by treaty or by the United States Congress. The power of Indian tribes to enact their own laws to regulate gaming derives from the exercise
                                                                                                                                                                          (including pari-mutuel wagering revenues from our racebook at Mohegan Sun and our Pennsylvania OTW facilities);
   of this tribal sovereignty. Indian tribes maintain their own governmental systems and often their own judicial systems. Indian tribes have the right to tax
   persons and enterprises conducting business on tribal lands, and also have the right to require licenses and to impose other forms of regulations and                • food and beverage revenues;
   regulatory fees on persons and businesses operating on their lands.                                                                                                  • hotel revenues; and
   Absent the consent of the Tribe or action of the United States Congress, the laws of the State of Connecticut do not apply to us or the Tribe. Under the             • retail, entertainment and other revenues, which include revenues from the Mohegan Sun managed retail shops and the Mohegan Sun Arena.
   federal law that recognizes the Tribe, the Tribe consented to, among other things, the extension of Connecticut criminal law and Connecticut state traffic         Our largest component of revenues is gaming revenues, which is recognized as gaming wins less gaming losses, and is comprised primarily of revenues from
   controls over Mohegan Sun.                                                                                                                                         our slot machines and table games at Mohegan Sun. Revenues from slot machines are the largest component of our gaming revenues. Gross slot revenues,
                                                                                                                                                                      also referred to as gross slot win, represent all amounts played in the slot machines reduced by both (1) the winnings paid out and (2) all amounts we
                                                                                                                                                                      deposit into the slot machines to ensure sufficient coins in each machine to pay out the winnings. Pursuant to the Mohegan Compact, we report gross slot
                                                                                                                                                                      revenues and other statistical information related to slot machine operations to the State of Connecticut. On a monthly basis, we also post this information
                                                                                                                                                                      on our website at www.mtga.com.



22 |                                                                                                                                                                                                                                                                                                                             23 |
   Other commonly used terms in the discussion of revenues from slot machines include progressive slot machines, progressive jackpots, net slot revenues,             RESULTS OF OPERATIONS
   slot handle, gross slot hold percentage and net slot hold percentage. Progressive slot machines retain a portion of each amount wagered and aggregate
   these amounts with similar amounts from other slot machines in order to create one-time winnings that are substantially larger than those paid in the
   ordinary course of play. We refer to such aggregated amounts as progressive jackpots. Wide-area progressive jackpot amounts are paid by a third party              SUMMARY OPERATING RESULTS
   vendor and we remit a weekly payment to the vendor based on a percentage of the slot handle for each wide-area progressive slot machine. We accrue                 As of September 30, 2006, we own and operate the Mohegan Sun property in Connecticut and, through the Pocono Downs entities, operate a harness
   in-house progressive jackpot amounts until paid, and such accrued amounts are deducted from gross slot revenues, along with wide-area progressive                  racetrack at Pocono Downs and five OTW facilities in Pennsylvania. All of our revenues are derived from these operations. Our executive officers review
   jackpot amounts, to arrive at net slot revenues, also referred to as net slot win. Net slot revenues are included in gaming revenues in the accompanying           and assess the performance of the operating results and determine the proper allocation of resources to Mohegan Sun and the Pocono Downs entities on
   consolidated statements of income. Slot handle is the total amount wagered by patrons on slot machines during the period. Gross slot hold percentage               a separate basis. We therefore believe that we have two operating segments, one comprised solely of Mohegan Sun and another, referred to as “Pocono
   is the gross slot win as a percentage of slot handle. Net slot hold percentage is the net slot win as a percentage of slot handle.                                 Downs,” comprised of the operations of the Pocono Downs entities. The two operating segments are also separate reportable segments due to the differing
                                                                                                                                                                      nature of their operations. See Note 16 to the consolidated financial statements for financial information about the segments.
   Commonly used terms in the discussion of revenues from table games include table games revenues, table games drop and table games hold percentage.
   Table games revenues represents the closing table games inventory plus table games drop and credit slips for coins, chips or tokens returned to the casino         The following tables summarize our results from operations on a property basis (in thousands):
   cage, less opening table games inventory, discounts provided on patron losses, free bet coupons and chip fills to the tables. Table games drop is the total
                                                                                                                                                                                                                                                                                                                For the Fiscal Years Ended September 30,
   amount of cash, free bet coupons, cash advance drafts, customer deposit withdrawals, safekeeping withdrawals and credit issued at the table contained                                                                                                                                                  Dollar Variance          Percentage Variance
   in the locked container at each gaming table. Table games hold percentage is the table games revenues as a percentage of table games drop.                                                                                                       2006         2005         2004            06 vs. 05       05 vs. 04        06 vs. 05      05 vs. 04
                                                                                                                                                                                     Net revenues:
   Revenues from food and beverages, hotel, retail, entertainment events and other services are recognized at the time the service is performed. Minimum
                                                                                                                                                                                          Mohegan Sun                                       $ 1,392,958 $ 1,305,686 $ 1,256,926           $    87,272     $ 48,760                6.7%           3.9%
   rental revenues that we receive pursuant to our rental lease agreements for The Shops at Mohegan Sun are recognized on a straight-line basis over the
                                                                                                                                                                                          Pocono Downs (1)                                        33,456      25,919         —                  7,537       25,919               29.1%              —
   terms of the leases. Percentage rents are recognized in the period in which the tenants exceed their respective percentage rent thresholds.
                                                                                                                                                                                          Total                                                1,426,414   1,331,605  1,256,926               94,809        74,679                 7.1%          5.9%


   PROMOTIONAL ALLOWANCES                                                                                                                                                            Income (loss) from operations:
                                                                                                                                                                                         Mohegan Sun                                              267,415      150,914     251,455            116,501        (100,541)     77.2%              -40.0%
   We operate a voluntary program for our guests at Mohegan Sun, without membership fees, called the Mohegan Sun Player’s Club. This program provides
                                                                                                                                                                                         Pocono Downs (1)                                          (7,400)          (67)        —              (7,333)            (67) 10,944.8%                    —
   complimentary food, beverages, hotel, retail, entertainment and other services to guests based on points that are awarded for guests’ gaming activities.
                                                                                                                                                                                         Corporate expenses                                      (10,636)       (11,483)    (4,838)               847          (6,645)      -7.4%              137.4%
   These points may be used to purchase, among other things, items at the retail stores and restaurants located within Mohegan Sun, including The Shops                                  Total                                                   249,379      139,364      246,617            110,015        (107,253)     78.9%              -43.5%
   at Mohegan Sun and the Mohegan Sun gasoline and convenience center. Points also may be used to purchase hotel services and tickets to entertainment
   events held at Mohegan Sun facilities. The retail value of points are included in gross revenues when redeemed at Mohegan Sun operated facilities and                             Net income                                             $     154,917 $    23,667 $    102,887        $ 131,250       $ (79,220)           554.6%          -77.0%
   then deducted as promotional allowances to arrive at net revenues.
                                                                                                                                                                      (1) Acquired January 25, 2005
   We also have ongoing promotional programs which offer coupons to our guests for the purchase of food, beverage, hotel and retail amenities offered
   within Mohegan Sun. The retail value of items or services purchased with coupons at Mohegan Sun operated facilities is included in gross revenues                  The important factors and trends that most contributed to our financial performance for the fiscal years ended September 30, 2006, 2005 and 2004,
   and the respective coupon value is deducted as promotional allowances to arrive at net revenues.                                                                   are as follows:

                                                                                                                                                                         • the strengthening of the Mohegan Sun brand awareness in the Northeast gaming market, which is reflected in our table games and slot revenue growth
   GAMING EXPENSES                                                                                                                                                         rates for the fiscal years ended September 30, 2006, 2005 and 2004;
   The largest component of gaming expenses is the portion of gross slot revenues which must be paid to the State of Connecticut. We refer to this payment               • the strong utilization of the private high limit table games suite that was opened in the Sky hotel at Mohegan Sun in June 2006, which contributed
   as the slot win contribution. For each 12-month period commencing July 1, 1995, the slot win contribution is the lesser of (a) 30% of gross slot revenues,              $11.7 million to table games revenues in fiscal 2006;
   or (b) the greater of (i) 25% of gross slot revenues or (ii) $80.0 million. Gaming expenses also include, among other things, expenses associated with
   operation of slot machines, table games, keno, live harness racing at Pocono Downs and racebook, certain marketing expenses, and promotional expenses                 • successful marketing programs and promotional events at Mohegan Sun designed to increase targeted repeat patron visitation;
   for the Mohegan Sun Player’s Club points and coupons redeemed at the hotel, restaurants and retail outlets owned by Mohegan Sun, as well as third party               • the optimization of hotel occupancy rates through extending offers to Player’s Club members which led to higher gaming and non-gaming revenues;
   tenant restaurants and The Shops at Mohegan Sun.
                                                                                                                                                                         • the utilization of technologies to improve the productivity and efficiencies of our Mohegan Sun labor force;
                                                                                                                                                                         • the continuation of a cost reduction program at Mohegan Sun which targets expenditures that grow at substantially faster rates than net revenues,
   INCOME FROM OPERATIONS                                                                                                                                                  such as certain promotional costs;
   We calculate income from operations as net revenues less total operating costs and expenses. Income from operations represents only those amounts that
                                                                                                                                                                         • the non-cash relinquishment liability reassessment charges of $39.4 million and $123.6 million for the fiscal years 2006 and 2005, respectively,
   relate to our consolidated operations and excludes minority interest, accretion of discount to the relinquishment liability, interest income, interest expense,
                                                                                                                                                                           which significantly increased our operating costs and expenses from fiscal year 2004;
   loss on early extinguishment of debt and other non-operating income and expenses.
                                                                                                                                                                         • execution of planned developments at Mohegan Sun at Pocono Downs, which negatively impacts income from operations due to pre-opening and
                                                                                                                                                                           other costs and expenses necessary to market and facilitate future operations; and
   ACCRETION OF DISCOUNT TO THE RELINQUISHMENT LIABILITY AND REASSESSMENT OF RELINQUISHMENT LIABILITY
                                                                                                                                                                         • the non-cash non-operating gain of $24.5 million from a settlement on the Pocono Downs purchase agreement discussed above under “Mohegan Sun
   In February 1998, we entered into a relinquishment agreement with Trading Cove Associates, or TCA. The relinquishment agreement provides that we will
                                                                                                                                                                           at Pocono Downs,” which resulted in a significant non-recurring increase in net income for the 2006 fiscal year.
   make certain payments to TCA out of, and determined as a percentage of, revenues (as defined in the relinquishment agreement) generated by Mohegan Sun
   over a 15-year period. In accordance with Statement of Financial Accounting Standards, or SFAS, No. 5, “Accounting for Contingencies,” or SFAS 5, we have          Net revenues for the fiscal year ended September 30, 2006 increased primarily as a result of a 6.2% growth in gaming and a 5.3% growth in non-gaming
   recorded a relinquishment liability of the estimated present value of our obligations under the relinquishment agreement. We reassess projected revenues           revenues at Mohegan Sun, and an increase in net revenues associated with a full year of operations at Pocono Downs and the OTWs acquired in January
   (and consequently the relinquishment liability) (i) annually in conjunction with our budgeting process and (ii) when necessary to account for material             2005. The increase in net revenues for the fiscal year ended September 30, 2006 was also due to a decrease in promotional allowances discussed below
   increases or decreases in projected revenues over the relinquishment period. Further, we record a quarterly accretion to the relinquishment liability to reflect   under “Promotional Allowances” compared to the prior fiscal year.
   the impact of the time value of money. Since there is a high level of estimates and judgments used with respect to calculating the relinquishment liability,
                                                                                                                                                                      Net revenues for the fiscal year ended September 30, 2005 increased primarily as a result of the growth of 6.8% in gaming revenues and 4.8% in non-gaming
   future events that affect such estimates and judgments may cause the actual relinquishment liability to differ significantly from the estimate. In addition, we
                                                                                                                                                                      revenues at Mohegan Sun and the addition of $22.9 million in harness racing and off-track wagering revenues from Pocono Downs and the OTWs acquired in
   have capitalized $130.0 million of this relinquishment liability in connection with the trademark value of the Mohegan Sun brand name. Under SFAS No. 142,
                                                                                                                                                                      January 2005. The increase in net revenues was partially offset by an increase in promotional allowances discussed below under “Promotional Allowances”
   “Goodwill and Other Intangible Assets,” or SFAS 142, the Mohegan Sun trademark is no longer subject to amortization because it has been deemed to have
                                                                                                                                                                      for the fiscal year ended September 30, 2005 compared to the prior fiscal year.
   an indefinite useful life. SFAS 142, however, requires the trademark to be evaluated at least annually for impairment by applying a fair-value test and, if
   impairment occurs, the amount of impaired trademark must be written off immediately. Refer to Notes 2 and 13 to our consolidated financial statements
   for a further discussion of how we account for the relinquishment liability.




24 |                                                                                                                                                                                                                                                                                                                                        25 |
   Income from operations for the fiscal year ended September 30, 2006 compared to the prior fiscal year increased as a result of the growth in net revenues                                               Gaming revenues for the fiscal year ended September 30, 2006 compared to the prior fiscal year increased due to continued growth in net slot revenues
   and a significant decrease in the non-cash relinquishment liability reassessment charge, as more fully described below under “Operating Costs and                                                       and table games revenues at Mohegan Sun. The increase in net slot revenues and table games revenues, and higher win or revenue per unit for both slot
   Expenses.” Our operating margin or income from operations as a percentage of net revenues, for the fiscal year ended September 30, 2006 increased to                                                    machines and table games, resulted primarily from the strengthened awareness of the Mohegan Sun brand in the northeastern United States gaming market
   17.5% from 10.5% for the fiscal year ended September 30, 2005. This increase was primarily due to the decrease in the non-cash relinquishment liability                                                 due to enhancements in our targeted direct marketing programs. The increase in gaming revenues was also due to the contribution of $11.7 million in table
   reassessment charge, greater employee productivity and the cost reduction programs at Mohegan Sun mentioned above, which enabled Mohegan Sun to                                                         games revenues from the new private high limit table games suite discussed above under “Summary Operating Results” and an increase in harness racing
   have a 19.2% operating margin for the fiscal year ended September 30, 2006 compared to 11.6% for the fiscal year ended September 30, 2005.                                                              and off-track wagering revenues of $6.9 million, or 30.1%, as a result of a full year of operations at Pocono Downs and the OTW facilities acquired on
                                                                                                                                                                                                           January 25, 2005. We exceeded the Connecticut slot revenue market growth rate for the fiscal year ended September 30, 2006 of 2.3%, with Mohegan Sun
   Income from operations for the fiscal year ended September 30, 2005 decreased significantly as compared to the prior fiscal year as a result of a $123.6                                                increasing its market share to 52.7% for the fiscal year ended September 30, 2006 from 51.3% for the prior fiscal year. The State of Connecticut reported
   million non-cash relinquishment liability reassessment charge, as more fully described below under “Operating Costs and Expenses”. The reassessment                                                     slot revenues of $1.72 billion and $1.68 billion for the fiscal years ended September 30, 2006 and 2005, respectively.
   charge had the effect of substantially increasing operating costs and expenses, which was partially offset by the increase in net revenues.
                                                                                                                                                                                                           Gaming revenues for the fiscal year ended September 30, 2005 compared to the prior fiscal year increased due to continued growth in net slot revenues
   Net income for the fiscal year ended September 30, 2006 compared to the prior fiscal year increased primarily due to the increase in income from operations                                             and table games revenues and the addition of $22.9 million in harness racing and off-track wagering revenues as a result of the operations of Pocono Downs
   at Mohegan Sun and a $24.5 million gain recorded in connection with the amendment of the agreement by which we acquired Pocono Downs, as more fully                                                     and the OTWs acquired in January 2005. The increase in net slot revenues and table games revenues resulted primarily from the strengthened awareness
   described above under “Mohegan Sun at Pocono Downs.”                                                                                                                                                    of the Mohegan Sun brand in the northeastern United States gaming market. We exceeded the Connecticut slot revenue market growth rate for the fiscal
   Net income for the fiscal year ended September 30, 2005 compared to the prior fiscal year decreased primarily due to the decrease in income from operations                                             year ended September 30, 2005 of 2.9%. The State of Connecticut reported slot revenues of $1.68 billion and $1.63 billion for the fiscal years ended
   resulting from the reassessment of the relinquishment liability discussed above, and an increase in interest expense of $9.0 million offset by a decrease of                                            September 30, 2005 and 2004, respectively.
   $33.9 million in the loss on early extinguishment of debt due to refinancings discussed below under “Other Income (Expense)”.                                                                           Food and beverage revenues for the fiscal year ended September 30, 2006 compared to the prior fiscal year increased as a result of a $3.1 million increase
                                                                                                                                                                                                           in gross beverage revenues and an $818,000 increase in gross food revenues. The increase in beverage revenues was due primarily to an increase in the
   GROSS REVENUES                                                                                                                                                                                          number of events and ticket sales at the Mohegan Sun Arena in fiscal 2006, as discussed below. The increase in food revenues was due to a slight increase
                                                                                                                                                                                                           in the number of meals served, or food covers, and the average price per meal at Mohegan Sun. The average price per meal was $13.13 and $13.09 for the
   Gross revenues consisted of the following (in thousands):
                                                                                                                                                                For the Fiscal Years Ended September 30,
                                                                                                                                                                                                           fiscal years ended September 30, 2006 and 2005, respectively. The increase in food and beverage revenues was also a result of a full year of operations
                                                                                                                                                       Dollar Variance              Percentage Variance
                                                                                                                                                                                                           of the food and beverage outlets at the Pocono Downs properties acquired in January 2005.
                                                                                     2006           2005               2004                06 vs. 05          05 vs. 04         06 vs. 05     05 vs. 04
                                                                                                                                                                                                           Food and beverage revenues for the fiscal year ended September 30, 2005 compared to the prior fiscal year increased primarily as a result of the addition
                                                                                                                                                                                                           of $1.9 million in food and beverage revenues associated with the operation of the food and beverage outlets at the Pocono Downs properties. Mohegan Sun
                    Gaming                                                  $   1,282,768 $ 1,202,196           $ 1,125,145              $ 80,572          $ 77,051                6.7%          6.8%
                                                                                                                                                                                                           experienced a slight increase in food and beverage revenues due to a 5.8% increase in beverage revenues attributed to increased visitation at the casino,
                    Food and beverage                                               96,046       92,180              89,850                 3,866             2,330                4.2%          2.6%
                                                                                                                                                                                                           offset by a 0.4% decrease in food revenues due to the closure of the Mohegan Territory and Chief’s Deli restaurants in the Casino of the Earth for part of
                    Hotel                                                            50,818      50,058              52,035                   760             (1,977)              1.5%         -3.8%
                                                                                                                                                                                                           the fiscal year. The new Uncas American Indian Grill opened to the public in July 2005 in the space formerly occupied by these restaurants. The average
                    Retail, entertainment and other                                 121,699       112,319           100,903                 9,380              11,416              8.4%          11.3%
                                                                                                                                                                                                           price per meal at Mohegan Sun was $13.09 and $13.05 for the fiscal years ended September 30, 2005 and 2004, respectively.
                        Total                                               $     1,551,331 $ 1,456,753         $ 1,367,933              $ 94,578          $ 88,820                6.5%          6.5%
                                                                                                                                                                                                           The following table presents data related to our hotel revenues:
   The table below summarizes the percentage of gross revenues from each of our four revenue sources:
                                                                                                                                                                                                                                                                                                                                               For the Fiscal Years Ended September 30,
                                                                                                                                                                For the Fiscal Years Ended September 30,
                                                                                                                                                                                                                                                                                                                                          Variance                 Percentage Variance
                                                                                                                              2006                               2005                             2004
                                                                                                                                                                                                                                                                                      2006          2005           2004      06 vs. 05     05 vs. 04         06 vs. 05       05 vs. 04

                    Gaming                                                                                                   82.7%                             82.5%                            82.2%                 Rooms occupied                                             400,200        398,600         375,100       1,600        23,500               0.4%            6.3%
                    Food and beverage                                                                                         6.2%                              6.3%                             6.6%                 Average daily room rate (ADR)                            $      120     $       118   $       132     $     2      $     (14)              1.7%         -10.6%
                    Hotel                                                                                                     3.3%                              3.5%                             3.8%                 Occupancy rate                                               93.3%          92.9%           87.1%        0.4%          5.8%               0.4%            6.7%
                    Retail, entertainment and other                                                                           7.8%                              7.7%                             7.4%                 Revenue per available room (REVPAR)                      $       112    $       110   $        115    $     2      $      (5)             1.8%           -4.3%
                        Total                                                                                               100.0%                            100.0%                           100.0%

                                                                                                                                                                                                           Hotel revenues for the fiscal year ended September 30, 2006 compared to the prior fiscal year increased slightly due to our yield management strategy
   The following table presents data related to our gaming revenues (in millions, except where noted):
                                                                                                                                                                                                           evidenced by the increase in hotel occupancy, which we believe contributes to growth in gaming, food and beverage and retail, entertainment and other
                                                                                                                                                                For the Fiscal Years Ended September 30,
                                                                                                                                                           Variance                 Percentage Variance
                                                                                                                                                                                                           revenues at Mohegan Sun.
                                                                                   2006            2005              2004            06 vs. 05             05 vs. 04           06 vs. 05      05 vs. 04
                                                                                                                                                                                                           Hotel revenues decreased for the fiscal year ended September 30, 2005 compared to the prior fiscal year as a result of a decrease in ADR partially offset by
                    Slot handle                                             $    10,540     $    10,182     $      10,294            $     358         $       (112)              3.5%           -1.1%
                                                                                                                                                                                                           an increase in occupancy rate. In 2005, Mohegan Sun continued to optimize hotel room availability to Player’s Club members, which led to the decreases in
                    Gross slot revenues                                             905             861               833                   44                  28                 5.1%          3.4%
                                                                                                                                                                                                           REVPAR and ADR. The optimization of hotel inventory to rated casino patrons is believed to have contributed to growth in gaming and non-gaming revenues
                    Net slot revenues                                               876            834                809                   42                  25                5.0%           3.1%
                                                                                                                                                                                                           that exceeds the decline in hotel revenues.
                    Weighted average number of
                        slot machines (in units)                                  6,201          6,233              6,224                  (32)                 9               -0.5%            0.1%      Retail, entertainment and other revenues increased for the fiscal year ended September 30, 2006 compared to the prior fiscal year as a result of the increase
                    Gross slot hold percentage                                    8.6%            8.5%               8.1%                 0.1%               0.4%                 1.2%           4.9%      in entertainment revenues at Mohegan Sun of $16.1 million, or 52.8%, offset by a decrease in retail revenues at Mohegan Sun of $6.4 million, or 10.7%, due
                    Gross slot win per unit per day                                                                                                                                                        to changes in promotions offered to Mohegan Sun Player’s Club members. The increase in entertainment revenues was primarily due to a 30.6% increase in
                        (in dollars)                                               400             379                366                   21                    13              5.5%           3.6%      Mohegan Sun Arena ticket sales and a 21.6% increase in average price for Arena tickets due to an increased number of headliner shows.
                    Table games drop                                             2,305           2,086              1,952                  219                  134              10.5%           6.9%
                    Table games revenues                                           366             334                306                   32                   28               9.6%           9.2%      Retail, entertainment and other revenues increased for the fiscal year ended September 30, 2005 compared to the prior fiscal year, principally as the result
                    Weighted average number of                                                                                                                                                             of an $8.8 million, or 17.3%, increase in retail revenues primarily driven by a $6.0 million increase in fuel revenues due to the substantial increase in the
                        table games (in units)                                      300            294               285                     6                  9                2.0%            3.2%      price per gallon of fuel at the Mohegan Sun gasoline and convenience center. The increase in retail revenues and an increase in miscellaneous other
                    Table games hold percentage (1)                               15.9%          16.0%              15.7%                -0.1%               0.3%               -0.6%            1.9%      revenues of $6.7 million, which include increases in rental revenues associated with the third party tenant restaurants and retail outlets at Mohegan Sun
                    Table games revenue per unit                                                                                                                                                           and the addition of certain other revenues as a result of the operation of the Pocono Downs properties, is partially offset by a decrease in entertainment
                        per day (in dollars)                                $     3,341     $     3,114     $      2,938             $     227         $        176               7.3%           6.0%      revenues of 12.0%, or $4.1 million, due to a decrease of 11.3% in the average price per ticket resulting from a change in the mix of Mohegan Sun Arena
   (1) Table games hold percentage is significantly over shorter periods.                                                                                                                                  events in fiscal year 2005.




26 |                                                                                                                                                                                                                                                                                                                                                                           27 |
   PROMOTIONAL ALLOWANCES                                                                                                                                                               Gaming costs and expenses increased for the fiscal year ended September 30, 2005 compared to the prior fiscal year primarily as a result of increased
                                                                                                                                                                                        costs related to a higher amount of complementaries provided to casino patrons, the reimbursement of gift cards and complementaries redeemed at tenant
   The retail value of providing promotional allowances at Mohegan Sun is included in revenues as follows (in thousands):
                                                                                                                                                                                        retail outlets and the addition of $15.8 million in gaming expenses associated with harness racing and OTW operations at the Pocono Downs properties.
                                                                                                                                             For the Fiscal Years Ended September 30,   Slot win contribution payments to the State of Connecticut totaled $215.2 million and $208.2 million for the fiscal years ended September 30, 2005 and
                                                                                                                                  Dollar Variance                Percentage Variance    2004, respectively.
                                                                              2006            2005           2004     06 vs. 05        05 vs. 04            06 vs. 05      05 vs. 04
              Food and beverage                                        $   46,894     $  44,757       $   43,393     $ 2,137         $ 1,364                  4.8%             3.1%     Food and beverage costs and expenses increased for fiscal year ended September 30, 2006 compared to the prior fiscal year due to higher direct labor
              Hotel                                                         17,356       16,292            14,166      1,064            2,126                 6.5%           15.0%      and other operating costs to support the increase in food and beverage revenues and the continuous improvements of our food and beverage services
              Retail, entertainment and other                              60,667       64,099            53,448      (3,432)          10,651                -5.4%           19.9%      at Mohegan Sun, and an increase in food and beverage expenses associated with a full year of operations of the food and beverage outlets at the Pocono Downs
                  Total                                                $   124,917    $ 125,148       $   111,007    $ (231)         $ 14,141                -0.2%           12.7%      properties acquired on January 25, 2005. The increase in food and beverage expenses was partially offset by a higher amount of food and beverage costs
                                                                                                                                                                                        being allocated to gaming costs and expenses for food and beverage complementaries provided to casino patrons.
   The estimated cost of providing promotional allowances at Mohegan Sun is included in operating costs and expenses, primarily gaming, as follows
                                                                                                                                                                                        Food and beverage costs and expenses increased for the fiscal year ended September 30, 2005 compared to the prior fiscal year due to the addition
   (in thousands):
                                                                                                                                                                                        of $1.9 million in expenses related to the operation of the food and beverage outlets at the Pocono Downs properties. Food and beverage expenses
                                                                                                                                             For the Fiscal Years Ended September 30,   at Mohegan Sun increased slightly as a result of higher direct labor and other operating costs commensurate with the growth in food and beverage
                                                                                                                                  Dollar Variance                Percentage Variance    revenues, offset by a higher amount of food and beverage costs allocated to gaming costs and expenses for food and beverage complementaries
                                                                              2006            2005           2004     06 vs. 05        05 vs. 04            06 vs. 05      05 vs. 04    provided to casino patrons.
              Food and beverage                                        $    48,352    $   44,877      $   42,837     $ 3,475         $ 2,040                    7.7%         4.8%
              Hotel                                                          8,734          7,731          5,916       1,003            1,815                 13.0%         30.7%       Hotel costs and expenses increased for the fiscal year ended September 30, 2006 compared to the prior fiscal year as a result of increased labor and
              Retail, entertainment and other                               46,874        49,372          42,496      (2,498)          6,876                   -5.1%        16.2%       other operating costs, including significant costs for the replacement of hotel room supplies, partially offset by increased hotel complementaries, resulting
                  Total                                                $   103,960    $ 101,980       $    91,249    $ 1,980         $ 10,731                  1.9%           11.8%     in a higher amount of hotel costs and expenses being allocated to gaming costs and expenses.

                                                                                                                                                                                        Hotel costs and expenses increased for the fiscal year ended September 30, 2005 compared to the prior fiscal year primarily as a result of higher labor
   Promotional allowances decreased for the fiscal year ended September 30, 2006 compared to the prior fiscal year as a result of a significant decrease in                             and other operating costs related to the increase in occupied rooms, partially offset by increased hotel complementaries for the fiscal year ended
   retail complementaries due to a reduction in gas and other retail coupons offered to casino patrons, offset by: 1) increased redemption of entertainment                             September 30, 2005, resulting in higher hotel costs and expenses recorded in gaming costs and expenses as compared to the prior fiscal year ended
   complementaries at Mohegan Sun resulting from higher attendance and retail prices of tickets due to the increased number of headliner shows at the                                   September 30, 2004.
   Mohegan Sun Arena as discussed above; 2) an increase in food and beverage complementaries at Mohegan Sun due to the increase in attendance at the
   Arena and a change in promotional programs to offer more food and beverage complementaries and offer less retail complementaries as discussed above;                                 Retail, entertainment and other costs and expenses increased for the fiscal year ended September 30, 2006 compared to the prior fiscal year primarily
   and 3) an increase in hotel complementaries due to the yield management strategy described above.                                                                                    due to a substantial increase in entertainment expenses due to the increased number of headliner shows at the Mohegan Sun Arena, partially offset by
                                                                                                                                                                                        a decrease in retail expenses due to the change in promotional programs offered to casino patrons and an increase in entertainment complementaries,
   Promotional allowances for the fiscal year ended September 30, 2005 compared to the prior fiscal year increased due primarily to the increase in redemption                          resulting in a higher amount of entertainment costs and expenses being allocated to gaming costs and expenses.
   of retail, entertainment and other complementaries at Mohegan Sun. The increase in retail, entertainment and other promotional allowances was due
   primarily to increases in Player’s Club points and coupons redeemed at retail outlets owned and operated by Mohegan Sun, including the Mohegan Sun                                   Retail, entertainment and other costs and expenses decreased for the fiscal year ended September 30, 2005 compared to the prior fiscal year primarily due
   gasoline and convenience center.                                                                                                                                                     to a decrease in entertainment expenses associated with a change in the mix of Arena events and an increase in retail and entertainment complementaries
                                                                                                                                                                                        provided to patrons at Mohegan Sun for the fiscal year ended September 30, 2005, resulting in a higher amount of retail, entertainment and other costs and
                                                                                                                                                                                        expenses being recorded in gaming costs and expenses than in fiscal year ended September 30, 2004, offset by an increase in the cost of fuel and number
   OPERATING COSTS AND EXPENSES
                                                                                                                                                                                        of gallons of fuel sold at the Mohegan Sun gasoline and convenience center. Lower costs for live entertainment contributed to retail, entertainment and other
   Operating costs and expenses consisted of the following (in thousands):                                                                                                              costs and expenses as a percentage of retail, entertainment and other revenues decreasing from 41.5% for the fiscal year ended September 30, 2004 to
                                                                                                                                             For the Fiscal Years Ended September 30,
                                                                                                                                                                                        31.6% for the fiscal year ended September 30, 2005.
                                                                                                                                  Dollar Variance                Percentage Variance
                                                                                                                                                                                        Advertising, general and administrative costs and expenses increased for the fiscal year ended September 30, 2006 compared to the prior fiscal year
                                                                              2006            2005           2004     06 vs. 05        05 vs. 04            06 vs. 05      05 vs. 04
                                                                                                                                                                                        primarily as a result of increased labor, utility costs, property maintenance and other costs necessary to support Mohegan Sun operations. The increase
              Gaming                                                   $ 722,206     $ 684,640        $   631,498   $ 37,566        $ 53,142                  5.5%            8.4%
                                                                                                                                                                                        in advertising, general and administrative costs and expenses was also due to an increase in advertising, general and administrative costs and expenses
              Food and beverage                                           49,710         45,216            43,264      4,494           1,952                  9.9%            4.5%
                                                                                                                                                                                        associated with a full year of operations of our Pocono Downs properties acquired on January 25, 2005.
              Hotel                                                       16,883          16,114           15,440        769             674                  4.8%            4.4%
              Retail, entertainment and other                             43,370        35,442             41,870      7,928          (6,428)                22.4%          -15.4%      Advertising, general and administrative costs and expenses increased for the fiscal year ended September 30, 2005 compared to the prior fiscal year
              Advertising, general and                                                                                                                                                  primarily as a result of increased labor, maintenance and other costs necessary to support Mohegan Sun operations, approximately $2.0 million in expenses
                   administrative                                          201,589        186,805         175,907      14,784           10,898                7.9%            6.2%      relating to the release of a new series of television commercials for Mohegan Sun that began airing in the northeastern market during the second quarter
              Corporate expenses                                            10,558           11,465         4,838       (907)            6,627               -7.9%          137.0%
                                                                                                                                                                                        of fiscal 2005 and the addition of $4.7 million in advertising, general and administrative costs and expenses associated with the operation of our
              Pre-opening costs and expenses                                 5,130            1,257            —        3,873             1,257             308.1%               —
                                                                                                                                                                                        Pocono Downs properties.
              Depreciation and amortization                                 88,182          87,678         93,595         504            (5,917)              0.6%           -6.3%
              Relinquishment liability                                                                                                                                                  Corporate costs and expenses decreased for the fiscal year ended September 30, 2006 compared to the prior fiscal year primarily as a result of reduced
                   reassessment                                            39,407       123,624             3,897     (84,217)   119,727                     -68.1%      3,072.3%       headcount, professional costs related to compliance with the Sarbanes-Oxley Act of 2002 and other corporate expenditures.
                   Total                                               $ 1,177,035   $ 1,192,241      $ 1,010,309   $ (15,206) $ 181,932                      -1.3%         18.0%
                                                                                                                                                                                        Corporate costs and expenses increased for the fiscal year ended September 30, 2005 compared to the prior fiscal year primarily as a result of increased
                                                                                                                                                                                        labor and professional costs associated with the continued formation of our corporate structure and expenses incurred in complying with the Sarbanes-Oxley
   Gaming costs and expenses increased for the fiscal year ended September 30, 2006 compared to the prior fiscal year primarily as a result of higher labor costs,                      Act of 2002.
   slot win contribution to the State of Connecticut and other operating costs commensurate with higher gaming revenues, increased costs related to a higher
   amount of certain complementaries and special promotions offered to casino patrons and enhancements in our targeted direct marketing programs and an                                 Pre-opening costs and expenses for the fiscal years ended September 30, 2006 and 2005 were comprised of personnel, consulting and other costs
   increase in gaming expenses associated with a full year of harness racing and OTW operations at the Pocono Downs properties acquired in January 2005;                                associated with the development plans for Mohegan Sun at Pocono Downs, as described above under “Mohegan Sun at Pocono Downs”.
   partially offset by a decrease in outside retail redemption costs due to changes in promotional programs offered to casino patrons. The increase in labor
                                                                                                                                                                                        Depreciation and amortization for the fiscal year ended September 30, 2006 compared to the prior fiscal year increased primarily due to a full year of
   costs included an increase in bonus expenses as a result of our successful fiscal 2006 operating results and in commemoration of the casino’s ten-year
                                                                                                                                                                                        depreciation related to our Pocono Downs property and equipment acquired on January 25, 2005 and the placement of new capital assets into service
   anniversary. Slot win contribution payments to the State of Connecticut totaled $226.3 million and $215.2 million for the fiscal years ended September 30,
                                                                                                                                                                                        at Mohegan Sun at Pocono Downs, including a new simulcast facility, during fiscal year 2006.
   2006 and 2005, respectively. Despite the increases mentioned above, efficiencies achieved in Mohegan Sun gaming operations caused gaming costs
   and expenses as a percentage of gaming revenues to decrease from 56.9 % for the fiscal year ended September 30, 2005 to 56.3% for the fiscal year                                    Depreciation and amortization for the fiscal year ended September 30, 2005 decreased primarily due to an increase in fully depreciated assets and the
   ended September 30, 2006.                                                                                                                                                            timing of placement of new capital assets into service.



28 |                                                                                                                                                                                                                                                                                                                                           29 |
  Relinquishment liability reassessment for the fiscal year ended September 30, 2006 decreased significantly compared to the reassessment in the prior fiscal                                                                                           The gaming industry in Connecticut is seasonal in nature, with the heaviest gaming activity often occurring at Mohegan Sun between May and August.
  year, which had the effect of substantially decreasing our operating expenses. The relinquishment liability reassessment charge in fiscal year 2006 was the                                                                                           Additionally, live harness racing activity at Pocono Downs is seasonal, with the racing season commencing in April and ending in November. Accordingly,
  result of our review of current revenue forecasts, including the estimated timing and extent of future competition, which led to increased revenue projections                                                                                        the results of operations for the fiscal year ended September 30, 2006 are not necessarily indicative of the operating results for interim periods.
  for the period in which the relinquishment agreement applies, as more fully described below.

  Our accounting policy is to reassess the relinquishment liability at least annually in conjunction with our budgeting process or upon an event which, in our                                                                                          LIQUIDITY, CAPITAL RESOURCES AND CAPITAL SPENDING
  estimation, would materially increase or decrease projected revenues over the relinquishment period. In October 2006, our Management Board approved                                                                                                   Our cash flows consisted of the following (in thousands):
  an expansion of Mohegan Sun referred to as “Project Horizon.” As a result of this decision and a review of potential competition in the Northeast gaming
                                                                                                                                                                                                                                                                                                                                                                                                   For the Fiscal Years Ended September 30,
  market impacting future Mohegan Sun revenues, we concluded that projected revenues from Mohegan Sun subject to the relinquishment agreement over
                                                                                                                                                                                                                                                                                                                                                                                          Dollar Variance              Percentage Variance
  the remaining period of the agreement, which expires on December 31, 2014, would increase by approximately $878.2 million, thereby increasing the related
                                                                                                                                                                                                                                                                                                                                    2006           2005          2004         06 vs. 05        05 vs. 04          06 vs. 05      05 vs. 04
  relinquishment liability, resulting in a non-cash relinquishment liability charge of $39.4 million for the fiscal year ended September 30, 2006.

  Relinquishment liability reassessment for the fiscal year ended September 30, 2005 increased significantly compared to the reassessment in the prior                                                                                                             Net cash provided by operating activities                $   250,877     $    247,075 $    214,805    $     3,802      $     32,270               1.5%          15.0%
  fiscal year, with a corresponding impact on our operating expenses. The relinquishment liability reassessment charge in fiscal year 2005 was the result of                                                                                                       Net cash used in investing activities                        (100,781)       (335,178)     (32,188)       234,397          (302,990)           -69.9%          941.3%
  our review of current revenue forecasts, including the estimated timing and extent of future competition, which led to increased revenue projections for the                                                                                                     Net cash provided by (used in)
  period in which the relinquishment agreement applies. On May 13, 2005, the IBIA overturned the federal recognition of the Historic Eastern Pequot Tribe                                                                                                               financing activities                                    (147,275)        99,734      (195,087)       (247,009)         294,821           -247.7%          -151.1%
  and the Schaghticoke Tribe of kent, Connecticut. These decisions were remanded to the United States Secretary of the Interior for reconsideration. We                                                                                                            Net increase (decrease) in cash and
  concluded this ruling was not substantive enough to warrant a reassessment of the relinquishment liability at that time. However, on October 12, 2005, the                                                                                                            cash equivalents                                    $      2,821    $     11,631 $    (12,470)   $     (8,810) $         24,101           -75.7%         -193.3%
  BIA upon reconsideration denied the federal recognition of these two Indian tribes which had expressed interest in building casinos in the close proximity
  of Mohegan Sun in Connecticut. As a result of this decision and other developments involving the revaluation of the impact of potential competition in the                                                                                            As of September 30, 2006 and September 30, 2005, we held cash and cash equivalents of $75.2 million and $72.4 million, respectively. As a result of the
  northeastern United States gaming market, we concluded that it was appropriate to increase our projected revenues at Mohegan Sun over the remaining                                                                                                   cash-based nature of our business, operating cash flow levels tend to follow trends in our operating income, excluding the effects of non-cash charges, such
  period to which the relinquishment agreement applies by approximately $3.2 billion. This increase in projected revenues substantially increased the related                                                                                           as depreciation and amortization and relinquishment liability reassessments. The increase in cash provided by operating activities for the fiscal year ended
  relinquishment liability, resulting in a non-cash relinquishment liability charge of $123.6 million for the fiscal year ended September 30, 2005.                                                                                                     September 30, 2006 is attributable primarily to the increase in operating income after adjustments for non-cash items, partially offset by lower working
                                                                                                                                                                                                                                                        capital requirements.

  OTHER INCOME (EXPENSE)                                                                                                                                                                                                                                Operating activities are a significant source of our cash flows. We use our cash flows provided by operating activities primarily to meet our working capital
  Other income (expense) consisted of the following (in thousands):                                                                                                                                                                                     requirements, provide funding for our maintenance capital expenditures, reduce our debt, provide distributions to the Tribe, provide payments under the
                                                                                                                                                                                                                                                        relinquishment agreement and, from time to time, make investments. While we do not believe that there is any trend or a likely event that would adversely
                                                                                                                                                                                                             For the Fiscal Years Ended September 30,   impact the level of our cash flows provided by operating activities, there are numerous potential factors which may cause a substantial reduction in the
                                                                                                                                                                                                Dollar Variance                  Percentage Variance    amount of such cash flows, including, but not limited to, the following:
                                                                                                                     2006                  2005                2004                 06 vs. 05        05 vs. 04              06 vs. 05      05 vs. 04
                   Accretion of discount to the                                                                                                                                                                                                           • increased competition in the gaming industry, including the legalization or expansion of gaming in New England, New York, New Jersey and
                        relinquishment liability (1)                                                       $     (30,707)         $ (27,466) $ (29,939)                         $  (3,241) $ 2,473                             11.8%         -8.3%          Pennsylvania, which may result in a substantial decrease in revenue;
                   Interest income (2)                                                                             2,245                673          232                            1,572       441                         233.6%          190.1%
                                                                                                                                                                                                                                                          • downturn in the economy and lack of consumer confidence, which would result in reduced spending on discretionary items such as gaming activities;
                   Interest expense, net of capitalized interest                                                 (90,928)           (88,011)    (78,970)                           (2,917)   (9,041)                           3.3%           11.4%
                   Loss on early extinguishment of debt                                                               —                (280)     (34,138)                             280   33,858                         -100.0%         -99.2%         • an infrastructure or transportation disruption, such as the closure of Interstate 95 through Connecticut, for an extended period of time;
                   Other income (expense), net                                                                    24,508              (1,127)      (933)                          25,635       (194)                     -2,274.6%          20.8%         • a change in Connecticut or Pennsylvania state laws regarding smoking in gaming facilities; and
                        Total                                                                              $     (94,882)         $ (116,211) $ (143,748)                       $ 21,329 $ 27,537                            -18.4%         -19.2%
                                                                                                                                                                                                                                                          • an act of terrorism in the United States of America.
  (1) Our accretion of the discount to the relinquishment liability reflects the accretion of the discount to the present value of the relinquishment liability for the impact of the time value of money.                                              In addition to cash generated by operating activities, we have relied on external sources of liquidity to meet our investing requirements. The increase in
  (2) Comprised primarily of interest earned on long-term receivables from the Cowlitz Indian Tribe related to the Cowlitz Project, as more fully described in Note 15 to the consolidated financial statements.                                        cash used in financing activities for the fiscal year ended September 30, 2006 is attributable primarily to a change in debt activity from total net borrowings
                                                                                                                                                                                                                                                        of $213.2 million for the fiscal year ended September 30, 2005 to total debt payments of $15.0 million for the fiscal year ended September 30, 2006.
  Interest expense, net of capitalized interest, increased for the fiscal year ended September 30, 2006 compared to the prior fiscal year primarily due to                                                                                              The change in debt activity and decrease in cash used in investing activities for the fiscal year ended September 30, 2006 is attributable primarily to the
  increases in weighted average outstanding debt and weighted average interest rate, partially offset by the capitalization of $1.2 million in interest costs                                                                                           acquisition of Pocono Downs in fiscal 2005 for approximately $280.0 million.
  during the construction phase at Pocono Downs. The weighted average outstanding debt was $1.25 billion for the fiscal year ended September 30, 2006
  versus $1.21 billion for the fiscal year ended September 30, 2005. The increase in weighted average outstanding debt was due to a full year of outstanding
  debt in fiscal 2006 related to the acquisition of Pocono Downs and the five OTW facilities in January 2005. The weighted average interest rate was 7.4%                                                                                               EXTERNAL SOURCES OF LIQUIDITY
  for the fiscal year ended September 30, 2006 compared to 7.3% for the fiscal year ended September 30, 2005.
                                                                                                                                                                                                                                                        NOTES
  Interest expense, net of capitalized interest, increased for the fiscal year ended September 30, 2005 compared to the prior fiscal year primarily as the result
                                                                                                                                                                                                                                                        We financed the purchase of the Pocono Downs entities and previously financed much of the costs of construction of Mohegan Sun with the net proceeds
  of an increase in weighted average outstanding debt. Weighted average outstanding debt increased to $1.21 billion for the fiscal year ended September 30,
                                                                                                                                                                                                                                                        raised from the issuance of notes and borrowings under our bank credit facilities. As of September 30, 2006, we had $16.3 million outstanding in 8 3/8%
  2005 from $1.09 billion for the fiscal year ended September 30, 2004 due to the acquisition of Pocono Downs for approximately $280.0 million in January
                                                                                                                                                                                                                                                        senior subordinated notes due July 1, 2011 and first callable July 1, 2006, or the 2001 senior subordinated notes; $250.0 million outstanding in 8% senior
  2005. The weighted average interest rate was approximately 7.3% for the fiscal years ended September 30, 2005 and 2004.
                                                                                                                                                                                                                                                        subordinated notes due April 1, 2012 and first callable April 1, 2007, or the 2002 senior subordinated notes; $330.0 million outstanding in 6 3/8% senior
  Loss on early extinguishment of debt associated with the repayment of our term loan under the bank credit facility was $280,000 for the fiscal year ended                                                                                             subordinated notes due July 15, 2009, or the 2003 senior subordinated notes; $225.0 million outstanding in 7 1/8% senior subordinated notes due August 15,
  September 30, 2005. Loss on early extinguishment of debt in fiscal year 2004 was related to the refinancing of $186.0 million of our outstanding 8 1/8%                                                                                               2014 and first callable on August 15, 2009, or the 2004 senior subordinated notes; $250.0 million outstanding in 6 1/8% senior notes due February 15, 2013
  senior notes due 2006 and $133.7 million of our outstanding 8 3/8% senior subordinated notes due 2011. The loss also includes the redemption of our                                                                                                   and first callable February 15, 2009, or the 2005 senior notes; and $150.0 million outstanding in 6 7/8% senior subordinated notes due February 15, 2015
  remaining $5.2 million 8 ¾% senior subordinated notes due 2009.                                                                                                                                                                                       and first callable February 15, 2010, or the 2005 senior subordinated notes. As of September 30, 2006, MBC, Mohegan Ventures-NW, MCV-PA and the
                                                                                                                                                                                                                                                        Pocono Downs entities are guarantors of each of these notes, except for the 2001 senior subordinated notes guaranteed exclusively by MBC. Refer to
  Other income for the fiscal year ended September 30, 2006 related primarily to a $24.5 million gain recorded in connection with the August 2006                                                                                                       Note 8 to our consolidated financial statements for a further discussion of these notes.
  amendment of the agreement by which we acquired Pocono Downs. Pursuant to the amendment, in exchange for our agreement to modify certain provisions
  of the purchase agreement, including the elimination of our post-closing termination rights, we will receive an aggregate refund of $30.0 million of the                                                                                              In November 2006, Standard and Poor’s Ratings Services downgraded the credit rating on our 2005 senior notes from BB- to B+ and the credit rating on
  original purchase price for the Pocono Downs entities, payable in five annual installments of $7.0 million, $7.0 million, $6.5 million, $6.0 million and $3.5                                                                                         our senior subordinated notes from B+ to B, primarily to reflect an increase in our projected ratio of debt to earnings related to the additional financings
  million on November 14, 2007, 2008, 2009, 2010 and 2011, respectively. The gain recorded in fiscal year 2006 represents the present value of the payment                                                                                              needed to fund the Project Horizon expansion at Mohegan Sun and the development plans at Pocono Downs. Moody’s Investors Services maintained
  stream for these installments.                                                                                                                                                                                                                        its rating of Baa2 on our 2005 senior notes and its rating of Ba2 on our senior subordinated notes following our announcement of the Project Horizon
                                                                                                                                                                                                                                                        expansion, but has issued a credit watch on our notes based on the explanation provided above.
  Other expense for the fiscal years ended September 30, 2005 and 2004 related primarily to the loss on disposal of property and equipment.

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30 SEASONALITY                                                                                                                                                                                                                                                                                                                                                                                                                     31 |
   BANk CREDIT FACILITY                                                                                                                                               CAPITAL EXPENDITURES
   We have a loan agreement for up to $450.0 million, or bank credit facility, from a syndicate of financial institutions and commercial banks, with Bank of
   America, N.A. serving as administrative agent. The bank credit facility provides for a revolving loan and letter of credit capacity of up to $450.0 million        CAPITAL EXPENDITURES INCURRED
   and matures on March 31, 2008. As of September 30, 2006, the amount under letters of credit totaled $50.7 million, of which no amount was drawn
                                                                                                                                                                      Capital expenditures totaled $101.9 million for the fiscal year ended September 30, 2006, compared to $51.0 million for the fiscal year ended
   (refer to “Letters of Credit” below). The revolving loan has no mandatory amortization provisions and is payable in full at maturity. We have $399.3 million
                                                                                                                                                                      September 30, 2005. These capital expenditures were an aggregate of the following:
   available for borrowing under the bank credit facility as of September 30, 2006 (without taking into account covenants under the line of credit discussed
   below). We expect to close on a new $1.0 billion revolving bank credit facility in January 2007, which will replace our current bank credit facility.                • Maintenance capital expenditures at Mohegan Sun totaled $44.4 million and $45.4 million for the fiscal years ended September 30, 2006 and 2005,
   In December 2005, we received the requisite consent of our lenders to Amendment No. 4 to the bank credit facility, which provided for an increase in the               respectively. For the fiscal year ended September 30, 2006, these expenditures were principally related to the purchase of new carpeting in the
   maximum amount available under letters of credit to $60.0 million. Amendment No. 4 permitted us to establish the $50.0 million letter of credit necessary              Casino of the Earth and Sky, customer relationship management software and related hardware, slot machine replacements, information systems
   for the Pennsylvania slot machine licensing process (refer to “Letters of Credit” below).                                                                              enhancements and upgrades and for other general maintenance of the Mohegan Sun facility. For the fiscal year ended September 30, 2005, these
                                                                                                                                                                          expenditures were for the general maintenance of the Mohegan Sun facility and construction of the Uncas American Indian Grill.
   The bank credit facility is collateralized by a lien on substantially all of our assets, including the assets of the Pocono Downs entities, and a leasehold
                                                                                                                                                                        • Capital expenditures at Pocono Downs totaled $44.4 million and $5.1 million for the fiscal years ended September 30, 2006 and 2005, respectively,
   mortgage on the land and improvements which comprise Mohegan Sun. We will also be required to pledge additional assets as we or our restricted
                                                                                                                                                                          which were comprised primarily of construction costs for the renovation and expansion of the existing grandstand and infrastructure related
   subsidiaries acquire them. In addition, our obligations under the bank credit facility are guaranteed by MBC, Mohegan Ventures-NW, MCV-PA and the
                                                                                                                                                                          improvements at Mohegan Sun at Pocono Downs, including capitalized interest. Capitalized interest totaled approximately $1.2 million and $21,000
   Pocono Downs entities as of September 30, 2006. The bank credit facility subjects us to a number of restrictive covenants, including financial covenants.
   These financial covenants relate to, among other things, our permitted total debt and senior debt leverage ratios, our minimum fixed charge coverage ratio             for the fiscal years ended September 30, 2006 and 2005, respectively.
   and our maximum capital expenditures. The bank credit facility includes non-financial covenants by us and the Tribe of the type customarily found in loan            • Capital expenditures for the Corporate segment were $13.1 million for the fiscal year ended September 30, 2006 which primarily includes the purchase
   agreements for similar transactions including requirements that:                                                                                                       of land intended to be used as the site for a casino to be owned by the Cowlitz Indian Tribe, as described above under “Other Diversification Projects.”
                                                                                                                                                                          Capital expenditures were $476,000 for the fiscal year ended September 30, 2005 which were primarily for the establishment of temporary offices
       • the Tribe preserve its existence as a federally recognized Indian tribe;
                                                                                                                                                                          for corporate employees.
       • the Tribe cause us to continually operate Mohegan Sun in compliance with all applicable laws; and
       • except under specific conditions, limit us from selling or disposing of our assets, limit the transfer of our assets to non-guarantor subsidiaries, limit    EXPECTED FUTURE CAPITAL EXPENDITURES
         the incurrence by us and our guarantor subsidiaries of other debt or contingent obligations and limit our ability to extend credit, make investments         Capital expenditures for fiscal year 2007 at Mohegan Sun, exclusive of the Project Horizon expansion described above under “Project Horizon,” are budgeted
         or commingle our assets with assets of the Tribe.                                                                                                            to be $75.1 million, which are expected to be comprised of the following:
   As of September 30, 2006, we and the Tribe were in compliance with all of our and their respective covenant requirements in the bank credit facility.
                                                                                                                                                                        • Maintenance capital expenditures at Mohegan Sun are anticipated to be approximately $45.1 million for the purchase of information system security
   At our option, each advance of loan proceeds accrues interest on the basis of a base rate or on the basis of a one-month, two-month, three-month,                      technology, server replacements, surveillance technology improvements, slot machines and back up power improvements.
   six-month or twelve-month London Inter-Bank Offered Rate (“LIBOR”), plus in either case, the applicable spread at the time each loan is made. We                     • Property renovation expenditures are expected to be approximately $30.0 million for the addition of new slot machines in the Casinos of the Earth and
   also pay commitment fees for the unused portion of the revolving loan on a quarterly basis equal to the applicable spread for commitment fees times                    Sky replacing certain cage and cashiering stations that are no longer needed due to changes in redemption technology, for conversion of the Cabaret
   the average daily unused commitment for that calendar quarter. Applicable spreads are based on our Total Leverage Ratio, as defined in the bank credit                 lounge into a semi-private gaming area scheduled to be completed in February 2007 and for a complete renovation of all guest rooms in the Sky hotel
   facility. The applicable spread for base rate advances is between 0.50% and 1.25%, and the applicable spread for LIBOR rate advances is between 1.75%
                                                                                                                                                                          scheduled to be completed by June 2007.
   and 2.50%. The applicable spread for commitment fees is between 0.375% and 0.50%. The base rate is the higher of Bank of America’s announced prime
   rate or the federal funds rate plus 0.50%. Interest on LIBOR loans is payable at the end of each applicable interest period or quarterly in arrears, if earlier.   We anticipate that we will spend approximately $134.0 million in fiscal year 2007 ($740.0 million in total) on the Project Horizon expansion, as discussed
   Interest on base rate advances is payable quarterly in arrears. As of September 30, 2006, we had no base rate loans and LIBOR rate loans outstanding.              above under “Project Horizon.”
   The applicable spread for commitment fees was 0.50% as of September 30, 2006.                                                                                      Capital expenditures for the Pocono Downs racetrack site are anticipated to be approximately $68.0 million for the 2007 fiscal year, comprised primarily of
                                                                                                                                                                      approximately $28.0 million and $38.0 million in development costs to complete the Phase I slot machine facility and to begin construction on the Phase II
   LINE OF CREDIT                                                                                                                                                     facility discussed above under “Mohegan Sun at Pocono Downs,” respectively. In October 2006, a one-time slot machine license fee of $50.0 million was
   We have a $25.0 million revolving loan agreement with Bank of America, or the line of credit. Each advance accrues interest on the basis of one-month              paid to the PGCB.
   LIBOR, plus the applicable spread, determined on the basis of our Leverage Ratio, as defined in the line of credit. Borrowings under the line of credit are        We anticipate the development of the Phase I facility will cost approximately $72.6 million in total, which does not include the $50.0 million one-time slot
   our uncollateralized obligations. The line of credit was amended in March 2006 to extend the maturity date from March 31, 2006 to March 31, 2008.                  machine license fee, and we plan to spend approximately $140.0 million to $150.0 million on the development of the Phase II facility as discussed above
   The line of credit subjects us to certain covenants, including a covenant to maintain at least $25.0 million available for borrowing under the bank credit         under “Mohegan Sun at Pocono Downs.”
   facility. As of September 30, 2006, we were in compliance with all covenant requirements in the line of credit. As of September 30, 2006 we had $25.0
   million available for borrowing under the line of credit.
                                                                                                                                                                      SOURCES OF FUNDING FOR CAPITAL EXPENDITURES
   SALISHAN CREDIT FACILITY                                                                                                                                           We will rely primarily on cash generated from operations to finance maintenance capital expenditures at Mohegan Sun and Pocono Downs. We plan to
                                                                                                                                                                      finance capital expenditures for Project Horizon and Phase II at Pocono Downs through a new $1.0 billion revolving bank credit facility from a syndicate
   On October 17, 2006, Salishan-Mohegan entered into a $25.0 million revolving loan agreement with Bank of America (the “Salishan Credit Facility”),                 of financial institutions and commercial banks. The new facility will replace our current $450.0 million bank credit facility and is expected to close in
   which matures on September 30, 2009. The revolving loan has no mandatory amortization provisions and is payable in full at maturity. At the option of              January 2007.
   Salishan-Mohegan, each advance of loan proceeds accrues interest on the basis of a base rate or on the basis of a one-month, two-month, three-month
   or six-month LIBOR, plus the applicable spread of 1.25% for base rate loans and 2.25% for LIBOR loans. The Salishan Credit Facility is collateralized by a lien
   on substantially all of the existing and future assets of Salishan-Mohegan. The obligations of Salishan-Mohegan under the Salishan Credit Facility are also
   guaranteed by the Mohegan Tribe. The Salishan Credit Facility subjects Salishan-Mohegan to a number of restrictive covenants, including financial and
   non-financial covenants customarily found in loan agreements for similar transactions.




32 |                                                                                                                                                                                                                                                                                                                          33 |
   INTEREST EXPENSE                                                                                                                                                                                                                             In addition to the contractual obligations described above, we have certain other contractual commitments as of September 30, 2006 that require payments
                                                                                                                                                                                                                                                during the periods described below. The calculation of the estimated payments in the table below are based, in large part, on projections of future revenues
   For the fiscal years ended September 30, 2006, 2005 and 2004, we incurred the following in interest expense, net of capitalized interest (in thousands):
                                                                                                                                                                                                                                                over an extended period of time, as well as other factors that are indicated more fully in the footnotes to the following table. Since there are estimates and
                                                                                                                                                                                                  For the Fiscal Years Ended September 30,      judgments used with respect to calculating these liabilities, future events that affect such estimates and judgments may cause the actual payments to differ
                                                                                                                                                                      2006                              2005                           2004     from the estimates set forth below. The amounts included in the table are estimates and, while some agreements are perpetual in term, for the purposes of
                   Bank credit facility                                                                                                                    $         3,463                   $        7,337               $          6,850      calculating these amounts, we have assumed that the table contains information for only ten years.
                   1999 8 1⁄8 % senior notes                                                                                                                           284                             1,219                        13,730
                   2005 6 1⁄8 % senior notes                                                                                                                        15,355                            9,826                              —
                   1999 83⁄4 % senior subordinated notes                                                                                                                 —                                —                             134                                                                                                                                                                                                                           Payments due by period
                   2001 8 3⁄8 % senior subordinated notes                                                                                                             1,369                          1,431                          10,697
                   2002 8% senior subordinated notes                                                                                                                20,000                        20,000                           20,000                       Contractual Commitments                                                                                                              Less than                                                                     More than
                                                                                                                                                                                                                                                                (in thousands)                                                                                                                        1 year (1)                1-3 years               3-5 years                    5 years
                   2003 6 3⁄8 % senior subordinated notes                                                                                                           21,038                         20,979                           21,037
                   2004 7 1⁄8 % senior subordinate notes                                                                                                            15,987                            16,031                         2,583                       Slot win contributions (2)                                                                                                     $ 234,427               $      470,126           $      483,018             $     1,340,185
                   2005 6 7⁄8 % senior subordinate notes                                                                                                             10,341                            6,617                             —                       Relinquishment commitments (3)                                                                                                    78,901                      158,977                  159,859                      273,175
                   WNBA note                                                                                                                                           336                               271                           205                       Priority distributions (4)                                                                                                        16,829                       35,387                   37,826                     106,364
                   Line of credit                                                                                                                                       515                             504                             179                      Town of Montville commitment (5)                                                                                                     500                        1,000                    1,000                       2,500
                   Interest settlement—derivative instruments                                                                                                            —                                —                         (2,552)
                   Reclassification of derivative instrument losses to earnings                                                                                          —                                —                            303                          Total                                                                                                                       $ 330,657               $     665,490            $      681,703             $     1,722,224
                   Amortization of net deferred gain on
                           settlement of derivative instruments                                                                                                         444                               711                           (117)   (1) Amounts represent payment commitments from October 1, 2006 to September 30, 2007.
                   Amortization of debt issuance costs                                                                                                               2,976                             3,106                          5,921     (2) Slot win contributions are a portion of the gross slot revenues that must be paid by us to the State of Connecticut pursuant to the Mohegan Compact. The slot win contribution is the lesser of (a) 30% of gross slot revenues, or
                   Capitalized interest                                                                                                                              (1,180)                              (21)                            —        (b) the greater of (i) 25% of gross slot revenues or (ii) $80.0 million.
                           Total interest expense, net of capitalized interest                                                                             $        90,928                   $        88,011              $         78,970      (3) Relinquishment payments are made by us to TCA under a relinquishment agreement. Relinquishment payments are five percent of revenues, as defined in the relinquishment agreement. Refer to Note 13 to our consolidated financial
                                                                                                                                                                                                                                                   statements in this Annual Report on Form 10-k.
                                                                                                                                                                                                                                                (4) Priority distributions are monthly payments required to be made by us to the Tribe pursuant to the priority distribution agreement. Refer to Note 12 to our consolidated financial statements in this Annual Report on Form 10-k.
                                                                                                                                                                                                                                                    The payments are calculated based on net cash flows and are limited to a maximum amount of $14.0 million pursuant to the priority distribution agreement, as adjusted annually based on the Consumer Price Index, or CPI.
   SUFFICIENCY OF RESOURCES                                                                                                                                                                                                                         For the purposes of calculating these amounts, we have assumed that we will pay the maximum amount in each of the years covered by the table, as adjusted by an annual CPI adjustment of 3.39%.
                                                                                                                                                                                                                                                (5) We have an agreement with the Town of Montville to pay the town an annual payment of $500,000 to minimize the impact on the town resulting from the decreased tax revenues on reservation land held in trust.
   We believe that existing cash balances, financing arrangements and operating cash flows will provide us with sufficient resources to meet our existing debt
   obligations, relinquishment payments, foreseeable capital expenditure requirements with respect to current operations and distributions to the Tribe for at
   least the next twelve months. Distributions to the Tribe are anticipated to total approximately $75.0 million for fiscal year 2007. Any future investments in                                                                                CRITICAL ACCOUNTING POLICIES AND ESTIMATES
   Mohegan Sun related to the Project Horizon expansion and in Pocono Downs related to the further development of a Phase II facility are anticipated to be                                                                                     Management has identified the following critical accounting policies that affect our more significant judgments and estimates used in the preparation
   funded through the new bank credit facility and additional borrowings, as necessary (refer to “Sources of Funding for Capital Expenditures” above). As of                                                                                    of our consolidated financial statements. The preparation of our consolidated financial statements in accordance with accounting principles generally
   September 30, 2006, we had $399.3 million available for borrowing under our current bank credit facility (without taking into account covenants under                                                                                        accepted in the United States of America requires management to make estimates and judgments that affect the reported amounts of assets and liabilities,
   the line of credit).                                                                                                                                                                                                                         revenues and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, management evaluates those estimates, including
                                                                                                                                                                                                                                                those related to asset impairment, relinquishment liability, accruals for unredeemed Player’s Club points, self-insurance, revenue recognition, allowance
                                                                                                                                                                                                                                                for doubtful accounts, contingencies and litigation. These estimates are based on the information that is currently available to us and on various other
   CONTRACTUAL OBLIGATIONS AND COMMITMENTS
                                                                                                                                                                                                                                                assumptions that management believes to be reasonable under the circumstances. Actual results could vary from those estimates.
   Our future payment obligations related to our debt and certain other material contractual obligations and the timing of those payments are set forth below.
                                                                                                                                                                                                                                                We believe that the following critical accounting policies affect significant judgments and estimates used in the preparation of our consolidated
                                                                                                                                                                                                                     Payments due by period
                                                                                                                                                                                                                                                financial statements:
                     Contractual Obligations                                                                                                          Less than                                                                    More than
                     (in thousands)                                                                                               Total                1 year (1)               1-3 years                3-5 years                   5 years
                                                                                                                                                                                                                                                REVENUE RECOGNITION
                   Long-term debt (2)                                                                               $      1,228,895              $     3,550            $     332,000            $       18,345              $  875,000
                   Interest payments on long-term debt (3)                                                                   506,481                    84,517                   168,571                 126,237                   127,156      We recognize gaming revenues as gaming wins less gaming losses. Revenues from food and beverage, hotel, retail, entertainment and other services
                   Total                                                                                            $      1,735,376              $    88,067            $      500,571          $       144,582              $ 1,002,156       are recognized at the time the service is performed. Minimum rental revenues are recognized on a straight-line basis over the terms of the related leases.
                                                                                                                                                                                                                                                Percentage rents are recognized in the period in which the tenants exceed their respective percentage rent thresholds.
   (1) Amounts represent payment obligations from October 1, 2006 to September 30, 2007.
   (2) Long-term debt includes maturities scheduled as of September 30, 2006 for our senior notes and senior subordinated notes, amounts required to be paid pursuant to the bank credit facility and our other debt agreements,
       but excludes interest payments. Refer to Note 8 to our consolidated financial statements.                                                                                                                                                ALLOWANCE FOR DOUBTFUL ACCOUNTS
   (3) Includes interest payments expected to be paid on long-term debt as of September 30, 2006, pursuant to respective debt agreements. Refer to Note 8 to our consolidated financial statements.
                                                                                                                                                                                                                                                We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our patrons to make required payments, which results
                                                                                                                                                                                                                                                in bad debt expense. Management determines the adequacy of this allowance by continually evaluating individual patron receivables, considering the
                                                                                                                                                                                                                                                patron’s financial condition, credit history and current economic conditions. If the financial condition of patrons were to deteriorate, resulting in an
                                                                                                                                                                                                                                                impairment of their ability to make payments, additional allowances may be required.

                                                                                                                                                                                                                                                We also maintain allowances for doubtful accounts for reimbursable costs and expenses incurred by Salishan-Mohegan for the development of a casino
                                                                                                                                                                                                                                                in Clark County, Washington to be owned by the Cowlitz Indian Tribe. Due to the inherent uncertainty in the development of this casino project, the reserve
                                                                                                                                                                                                                                                for these receivables is based on our estimate of the probability that the receivables will be collected. Future complications in the receipt of financing, the
                                                                                                                                                                                                                                                relevant land being taken into trust or other matters affecting the development of the casino could affect the collectibility of the receivables.




34 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    35 |
   UNREDEEMED PLAYER’S CLUB POINTS                                                                                                                                 CAPITALIzED INTEREST
   We maintain an accrual for unredeemed Player’s Club points, as more fully described above under “Explanation of key Financial Statement Captions—               The interest cost associated with major development and construction projects is capitalized and included in the cost of the project. When no debt is
   Promotional Allowances.” The accrual is based on the estimated cost of the points expected to be redeemed as of the respective balance sheet date.              incurred specifically for a project, interest is capitalized on amounts expended on the project using the weighted-average cost of our outstanding borrowings.
   Management determines the adequacy of this accrual by periodically evaluating the historical redemption experience and projected trends related to              Capitalization of interest ceases when the project is substantially complete or development activity is suspended for more than a brief period.
   this accrual.
                                                                                                                                                                   GOODWILL
   SELF-INSURANCE ACCRUALS                                                                                                                                         In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” the goodwill associated with the acquisition of the Pocono Downs entities is not
   We are self-insured up to certain limits for costs associated with workers’ compensation and employee medical coverage. Insurance claims and reserves           subject to amortization but is tested at least annually for impairment by comparing the fair value of the recorded assets to their carrying amount. If the
   include accruals of estimated settlements for known claims, as well as accruals of estimates of incurred but not reported claims. In estimating these costs,    carrying amount of the goodwill exceeds its fair value, an impairment loss will be recognized immediately.
   we consider historical loss experience and make judgments about the expected levels of costs per claim. We also use information provided by independent
   consultants to assist in the determination of estimated accruals. These claims are accounted for based on estimates of the undiscounted claims, including
                                                                                                                                                                   INTANGIBLE ASSETS
   those claims incurred but not reported. We believe the use of these estimates to account for these liabilities provides a consistent and effective way to
   measure these accruals; however, changes in health care costs, accident frequency and severity and other factors can materially affect the estimate for         Our trademark for Mohegan Sun is no longer subject to amortization as it has been deemed to have an indefinite useful life. The trademark is evaluated
   these liabilities. We continually monitor the potential changes in future estimates, evaluate insurance accruals and make adjustments when necessary.           periodically for impairment by applying a fair-value based test and, if impairment occurs, the amount of impaired trademark will be written off immediately.
                                                                                                                                                                   The intangible assets associated with the acquisitions of the Pocono Downs entities and the WNBA franchise are also assessed periodically for impairment
                                                                                                                                                                   pursuant to appropriate accounting standards.
   DERIVATIVE INSTRUMENTS
   At times, we use derivative instruments, including interest rate caps, collars and swaps in our strategy to manage interest rate risk associated with the
                                                                                                                                                                   LITIGATION
   variable interest rate on our bank credit facility and the fixed interest rates on our senior notes and senior subordinated notes. Our objective in managing
   interest rate risk is to achieve the lowest possible cost of debt and manage volatility in the effective cost of debt. We continually monitor risk exposures    We are subject to various claims and legal actions in the ordinary course of business. Some of these matters relate to personal injuries to customers and
   from derivative instruments held and make the appropriate adjustments to manage these risks within management’s established limits. We account for our          damage to customers’ personal assets. Management estimates guest claims expense and accrues for such liabilities based upon historical experience in
   derivative instruments in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” or SFAS 133, which requires that        other current liabilities in our accompanying consolidated balance sheets.
   all derivative instruments be recorded on the consolidated balance sheet at fair value. In order to qualify for hedge accounting in accordance with SFAS
                                                                                                                                                                   As the successor owner of Downs Racing, we are involved in a dispute with the Wilkes-Barre Area School District, which had filed an appeal in November
   133, the underlying hedged item must expose us to risks associated with market fluctuations and the financial instrument used must be designated as a
                                                                                                                                                                   2001 against Downs Racing’s predecessor company, Pocono Downs, Inc., and the Luzerne County Board of Assessment Appeals relating to certain property
   hedge and must reduce our exposure to market fluctuation throughout the hedge period. If these criteria are not met, a change in the market value of the
                                                                                                                                                                   tax assessments. The school district has challenged the certified assessment for the tax year 2002, and is seeking an unspecified increase to the assessed
   financial instrument is recognized as a gain or loss and is recorded as a component to interest expense in the period of change. We exclude the change in
                                                                                                                                                                   value of that property for 2002 and subsequent tax years, and now including additional assessments for tax year 2007. The captions for these appeal cases
   the time value of money when assessing the effectiveness of the hedging relationship. All derivatives are evaluated quarterly. We did not have any derivative
                                                                                                                                                                   are: Wilkes-Barre Area School District v. Pocono Downs, Inc. (n/k/a Downs Racing, L.P.), Luzerne County Docket #7793-C of 2001; Wilkes-Barre Area
   instruments as of September 30, 2006.
                                                                                                                                                                   School District v. Millcreek Land, Inc. (n/k/a Mill Creek Land, L.P.), Luzerne County Docket #7767 of 2006; and Wilkes-Barre Area School District v. Pocono
                                                                                                                                                                   Downs, Inc. (n/k/a Downs Racing, L.P.), Luzerne County Docket #7668 of 2006. All three cases were consolidated and a trial was held in September 2006
   RELINQUISHMENT LIABILITY                                                                                                                                        and a mediation conference took place in November 2006, with no judgment or settlement on the matter. Written proposed findings of fact and conclusions
   In accordance with SFAS 5, we have recorded a relinquishment liability of the estimated present value of our obligations under the relinquishment               of law are required to be submitted to the Luzerne County Court by January 16, 2007, after which the Court will issue a ruling. At this stage of the litigation,
   agreement. We reassess the relinquishment liability (i) annually in conjunction with our budgeting process or (ii) when necessary to account for material       no single amount within the range of any possible loss can be reasonably determined. We cannot provide any assurance as to the ultimate success of our
   increases or decreases in projected revenues over the relinquishment period. If the reassessment causes an overall increase to the projected revenues           defense of the school board’s complaint. If the school board’s complaint was resolved unfavorably to us, our financial position, results of operations and
   over the relinquishment period, the relinquishment liability will be increased by five percent of such increase in revenues, discounted at our risk-free        cash flows could be adversely affected.
   rate of investment (an incremental layer). If the reassessment causes an overall decrease to the projected revenues over the relinquishment period,
   the relinquishment liability will be decreased by five percent of such decrease in revenues, discounted based upon a weighted-average discount rate             IMPACT OF INFLATION
   (a decremental layer). The weighted-average discount rate is defined as the average discount rate used to discount all the previous incremental layers
                                                                                                                                                                   Absent changes in competitive and economic conditions or in specific prices affecting the hospitality and gaming industry, we do not expect that inflation
   weighted by the amount of each such incremental layer. Further, we record a quarterly accretion to the relinquishment liability to reflect the impact of
                                                                                                                                                                   will have a significant impact on our operations. Changes in specific prices, such as fuel and transportation prices, relative to the general rate of inflation
   the time value of money. Since there is a high level of estimates and judgments used with respect to calculating this liability, future events that affect
                                                                                                                                                                   may have a material adverse effect on the hospitality and gaming industry in general.
   such estimates and judgments may cause the actual liability to differ significantly from the estimate.

                                                                                                                                                                   NEW ACCOUNTING PRONOUNCEMENTS
   PROPERTY AND EQUIPMENT
                                                                                                                                                                   In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections—a replacement of APB Opinion No. 20 and FASB Statement
   Property and equipment are stated at cost. Depreciation is provided over the estimated useful lives of the assets (other than land) using the straight-line
                                                                                                                                                                   No. 3,” or FAS 154. FAS 154 requires retrospective application to prior periods’ financial statements of changes in accounting principles, subject to certain
   basis. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful lives of the improvements. Useful life estimates of
                                                                                                                                                                   practicability provisions, but does not change the guidance in APB Opinion No. 20 for reporting the correction of an error in previously issued financial
   asset categories are as follows:
                                                                                                                                                                   statements and a change in accounting estimate. FAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after
              Buildings and land improvements                                                   40 years                                                           December 15, 2005. We do not believe the adoption of this standard will have a material impact on our financial position, results of operations or cash flows.
              Furniture and equipment                                                          3-7 years
                                                                                                                                                                   In September 2006, the FASB issued SFAS 157, “Fair Value Measurements” (“FAS 157”). FAS 157 defines fair value, establishes a framework for measuring
   The costs of significant improvements are capitalized. Costs of normal repairs and maintenance are charged to expense as incurred. Gains or losses on           fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This standard does not require any new fair
   disposition of property and equipment are included in the determination of net income.                                                                          value measurements. FAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those
                                                                                                                                                                   fiscal years. We do not believe the adoption of this standard will have a material impact on our financial position, results of operations or cash flows.
   In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the carrying value of our assets is reviewed when
   events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If it is determined that an impairment loss has        In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108 (“SAB 108”), which provides guidance on the
   occurred based on current and future levels of income and expected future cash flows as well as other factors, then an impairment loss is recognized in         consideration of the effects of prior year financial statement misstatements in quantifying current year financial statement misstatements for the purpose
   the consolidated statement of income.                                                                                                                           of a materiality assessment. SAB 108 is effective for annual financial statements issued for fiscal years ending after November 15, 2006. We do not believe
                                                                                                                                                                   the application of this guidance will have a material impact on our financial position, results of operations or cash flows.




36 |                                                                                                                                                                                                                                                                                                                         37 |
       INDEX TO CONSOLIDATED FINANCIAL STATEMENTS                                           REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


       REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                         39   TO THE MANAGEMENT BOARD
                                                                                            OF THE MOHEGAN TRIBAL GAMING AUTHORITY

       CONSOLIDATED BALANCE SHEETS OF MOHEGAN TRIBAL GAMING
       AUTHORITY AS OF SEPTEMBER 30, 2006 AND 2005                                     40   In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, changes
                                                                                            in capital and cash flows present fairly, in all material respects, the financial position of Mohegan Tribal Gaming Authority
                                                                                            and its subsidiaries (the “Authority”) at September 30, 2006 and 2005, and the results of their operations and their cash
       CONSOLIDATED STATEMENTS OF INCOME OF MOHEGAN TRIBAL GAMING                           flows for each of the three years in the period ended September 30, 2006 in conformity with accounting principles generally
       AUTHORITY FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 2006, 2005 AND 2004          41   accepted in the United States of America. These financial statements are the responsibility of the Authority’s management.
                                                                                            Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of
                                                                                            these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States).
       CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL OF MOHEGAN TRIBAL GAMING               Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
       AUTHORITY FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 2006, 2005 AND 2004          42   statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts
                                                                                            and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by
                                                                                            management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
                                                                                            basis for our opinion.
       CONSOLIDATED STATEMENTS OF CASH FLOWS OF MOHEGAN TRIBAL GAMING
       AUTHORITY FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 2006, 2005 AND 2004          43



       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF MOHEGAN TRIBAL GAMING AUTHORITY   44

                                                                                            PricewaterhouseCoopers LLP
                                                                                            Hartford, Connecticut
                                                                                            December 19, 2006




38 |                                                                                                                                                                                                                        39 |
   MOHEGAN TRIBAL GAMING AUTHORITY                                                                                            MOHEGAN TRIBAL GAMING AUTHORITY
   CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)                                                                                 CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS)
                                                                                              September 30,   September 30,                                                                                                          For the                For the                 For the
                                                                                                     2006             2005
                                                                                                                                                                                                                          Fiscal Year Ended      Fiscal Year Ended       Fiscal Year Ended
                   ASSETS                                                                                                                                                                                               September 30, 2006     September 30, 2005      September 30, 2004

                   CURRENT ASSETS:                                                                                                            REVENUES:
                      Cash and cash equivalents                                              $    75,246      $    72,425                     Gaming                                                                        $     1,282,768        $     1,202,196           $     1,125,145
                      Receivables, net                                                             27,142          15,528                     Food and beverage                                                                      96,046                 92,180                   89,850
                      Inventories                                                                 15,353           15,926                     Hotel                                                                                   50,818               50,058                    52,035
                      Other current assets                                                        19,967            12,193                    Retail, entertainment and other                                                        121,699                112,319                100,903


                               Total current assets                                              137,708          116,072                             Gross revenues                                                               1,551,331             1,456,753                1,367,933
                                                                                                                                              Less-Promotional allowances                                                          (124,917)               (125,148)                (111,007)
                   NON-CURRENT ASSETS:
                      Property and equipment, net                                            $ 1,339,823      $ 1,322,691                     NET REVENUES:                                                                       1,426,414              1,331,605                1,256,926
                      Goodwill                                                                    39,459           39,459                     Operating costs and expenses:
                      Other intangible assets, net                                               339,649         340,567                         Gaming                                                                            722,206                684,640                  631,498
                      Other assets, net                                                            57,718         38,079                         Food and beverage                                                                  49,710                  45,216                  43,264
                                                                                                                                                 Hotel                                                                              16,883                    16,114                 15,440
                               Total assets                                                  $ 1,914,357      $ 1,856,868                        Retail, entertainment and other                                                    43,370                  35,442                   41,870
                                                                                                                                                 Advertising, general and administrative                                           201,589                186,805                  175,907
                   LIABILITIES AND CAPITAL                                                                                                       Corporate expenses                                                                 10,558                   11,465                   4,838
                                                                                                                                                 Pre-opening costs and expenses                                                      5,130                    1,257                      —
                   CURRENT LIABILITIES:                                                                                                          Depreciation and amortization                                                      88,182                  87,678                  93,595
                      Current portion of long-term debt                                      $     3,550      $     17,532                       Relinquishment liability reassessment                                              39,407                 123,624                    3,897
                      Current portion of relinquishment liability                                 96,936           90,410
                      Trade payables                                                               21,812         22,840                               Total operating costs and expenses                                         1,177,035               1,192,241               1,010,309
                      Accrued interest payable                                                     21,011         23,067                      Income from operations                                                               249,379                 139,364                  246,617
                      Other current liabilities                                                  129,039          116,569
                                                                                                                                              OTHER INCOME (EXPENSE):
                               Total current liabilities                                         272,348          270,418                        Accretion of discount to the relinquishment liability                             (30,707)               (27,466)                 (29,939)
                                                                                                                                                 Interest income                                                                     2,245                    673                      232
                   NON-CURRENT LIABILITIES
                                                                                                                                                 Interest expense, net of capitalized interest                                     (90,928)                (88,011)                (78,970)
                      Long-term debt, net of current portion                                 $ 1,225,804      $ 1,226,348
                                                                                                                                                 Loss on early extinguishment of debt                                                   —                    (280)                  (34,138)
                      Relinquishment liability, net of current portion                           451,038          462,078
                                                                                                                                                 Other income (expense), net                                                        24,508                  (1,127)                   (933)
                      Other long-term liabilities                                                    542              336

                                                                                                                                                          Total other expense                                                      (94,882)                (116,211)               (143,748)
                               Total liabilities                                             $ 1,949,732      $ 1,959,180

                                                                                                                                              Income before minority interest                                                       154,497                 23,153                 102,869
                   Minority interest                                                               3,480            2,560
                                                                                                                                                  Minority interest                                                                     420                    514                      18

                   COMMITMENTS AND CONTINGENCIES (NOTES 12 AND 15)
                                                                                                                                              Net income                                                                    $       154,917        $       23,667            $     102,887
                   CAPITAL:
                      Retained deficit                                                       $   (38,855)     $ (104,872)
                                                                                                                              The accompanying notes are an integral part of these consolidated financial statements.

                               Total capital                                                 $ (38,855)       $ (104,872)
                               Total liabilities and capital                                 $ 1,914,357      $ 1,856,868

   The accompanying notes are an integral part of these consolidated financial statements.




40 |                                                                                                                                                                                                                                                                              41 |
   MOHEGAN TRIBAL GAMING AUTHORITY                                                                                                                MOHEGAN TRIBAL GAMING AUTHORITY
   CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL (IN THOUSANDS)                                                                                   CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
                                                                                                                Accumulated                                                                                                                                                                         For the Fiscal Years Ended
                                                                                                                      Other
                                                                                                                                                                                                                                                                September 30,       September 30,               September 30,
                                                                                                  Retained    Comprehensive
                                                                                                    Deficit            Loss       Total Capital                                                                                                                         2006                2005                        2004
                   Balances, September 30, 2003                                              $   (98,592)     $       (303)   $    (98,895)                       CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
                   Net income                                                                    102,887                           102,887                        Net income                                                                                $       154,917     $        23,667             $       102,887
                   Reclassification of derivative instrument losses to earnings                                        303             303                        Adjustments to reconcile net income to net cash flows provided by operating activities:
                   Total comprehensive income                                                                                       103,190                           Depreciation and amortization                                                                88,182                87,678                     93,595
                   Distributions to Tribe                                                         (65,017)                          (65,017)                          Accretion of discount to the relinquishment liability                                        30,707                27,466                     29,939
                   Capital adjustment from majority-owned subsidiary transaction                     (317)                             (317)                          Relinquishment liability reassessment                                                        39,407               123,624                       3,897
                                                                                                                                                                      Cash paid for accretion of discount to the relinquishment liability                         (29,897)             (28,085)                    (30,852)
                   Balances, September 30, 2004                                              $    (61,039)    $          —    $     (61,039)                          Gain on Pocono Downs purchase settlement                                                    (25,444)                     —                          —
                   Net income                                                                      23,667                            23,667                           Loss on early extinguishment of debt                                                              —                   280                      34,138
                   Distributions to Tribe                                                        (67,500)                          (67,500)                           Payment of tender offer costs                                                                     —                      —                    (32,192)
                                                                                                                                                                      Net loss on disposition of assets                                                                172                  1,131                       933
                   Balances, September 30, 2005                                              $   (104,872)    $          —    $    (104,872)                          Provision for losses on receivables                                                           3,557                 2,286                          710
                   Net income                                                                      154,917                           154,917                          Amortization of debt issuance costs                                                           2,976                 3,106                       5,921
                   Distributions to Tribe                                                        (88,900)                          (88,900)                           Amortization of net deferred gain on settlement of derivative instruments                       444                     711                       (117)
                                                                                                                                                                      Reclassification of derivative instrument losses to earnings                                      —                      —                        303
                   Balances, September 30, 2006                                              $   (38,855)     $          —    $     (38,855)                          Minority interest                                                                              (420)                  (514)                        (18)
                                                                                                                                                                  Changes in operating assets and liabilities, net of effect of Pocono Downs acquisition:
   The accompanying notes are an integral part of these consolidated financial statements.                                                                            Decrease (increase) in receivables                                                           (12,886)              (2,948)                        1,551
                                                                                                                                                                      Decrease (increase) in inventories                                                               573                 (680)                      (1,359)
                                                                                                                                                                      Increase in other assets                                                                      (9,740)              (3,989)                       (1,174)
                                                                                                                                                                      Increase (decrease) in trade payables                                                         (1,038)              (4,003)                           40
                                                                                                                                                                      Increase in other liabilities                                                                  9,367                17,345                      6,603

                                                                                                                                                                       Net cash flows provided by operating activities                                            250,877              247,075                      214,805

                                                                                                                                                                  CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
                                                                                                                                                                  Purchases of property and equipment, net of increase (decrease) in
                                                                                                                                                                      construction payables of $3,417, $1,772 and $(1,232), respectively                          (98,503)              (49,219)                     (31,912)
                                                                                                                                                                  Acquisition of Pocono Downs, net of cash acquired of $875                                            —               (280,114)                          —
                                                                                                                                                                  Proceeds from asset sales                                                                           449                   186                          108
                                                                                                                                                                  Issuance of third party loans and advances                                                       (3,405)               (6,494)                       (605)
                                                                                                                                                                  Payments received on third-party loans                                                              678                   463                          221

                                                                                                                                                                       Net cash flows used in investing activities                                                (100,781)            (335,178)                    (32,188)

                                                                                                                                                                  CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
                                                                                                                                                                  Bank Credit Facility borrowings-revolving loan                                                  233,000              750,000                    290,000
                                                                                                                                                                  Bank Credit Facility repayments-revolving loan                                                 (233,000)           (838,000)                   (268,000)
                                                                                                                                                                  Bank Credit Facility borrowings-term loan                                                              —               58,333                          —
                                                                                                                                                                  Bank Credit Facility repayments-term loan                                                              —            (150,000)                     (8,334)
                                                                                                                                                                  Line of credit borrowings                                                                       444,226              474,900                    208,923
                                                                                                                                                                  Line of credit repayments                                                                      (444,226)           (479,985)                   (203,837)
                                                                                                                                                                  Proceeds from the issuance of long-term debt                                                           —            400,000                     225,000
                                                                                                                                                                  Payments on long-term debt                                                                       (14,970)              (2,000)                 (325,925)
                                                                                                                                                                  Minority interest contributions (distributions) and advances, net                                  1,340                  729                      (2,517)
                                                                                                                                                                  Principal portion of relinquishment liability payments                                           (44,731)             (42,540)                   (36,525)
                                                                                                                                                                  Distributions to Tribe                                                                          (88,900)             (67,500)                    (65,017)
                                                                                                                                                                  Capitalized debt issuance costs                                                                       (14)              (7,801)                   (3,709)
                                                                                                                                                                  Net proceeds (payments) from the settlement of derivative instruments                                  —                3,598                      (5,146)

                                                                                                                                                                       Net cash flows provided by (used in) financing activities                                  (147,275)              99,734                   (195,087)

                                                                                                                                                                     Net increase (decrease) in cash and cash equivalents                                            2,821               11,631                     (12,470)
                                                                                                                                                                  Cash and cash equivalents at beginning of year                                                    72,425              60,794                       73,264
                                                                                                                                                                  Cash and cash equivalents at end of year                                                  $       75,246      $       72,425              $       60,794

                                                                                                                                                                  Supplemental disclosures:
                                                                                                                                                                  Cash paid during the year for interest                                                    $       91,305      $       80,882              $        75,282

                                                                                                                                                                  Acquisition: Pocono Downs
                                                                                                                                                                  Fair value of assets acquired, including cash of $875                                     $            —      $       285,915             $               —
                                                                                                                                                                  Cash paid                                                                                              —             280,989                              —
                                                                                                                                                                  Fair value of liabilities assumed                                                         $            —      $         4,926             $               —

                                                                                                                                                  The accompanying notes are an integral part of these consolidated financial statements.




42 |                                                                                                                                                                                                                                                                                                                 43 |
   NOTE 1—ORGANIzATION AND BASIS OF PRESENTATION:                                                                                                                   PROPERTY AND EQUIPMENT
                                                                                                                                                                    Property and equipment are stated at cost. Depreciation is provided over the estimated useful lives of the assets (other than land) using the straight-line
   The Mohegan Tribe of Indians of Connecticut (the “Mohegan Tribe” or the “Tribe”) established the Mohegan Tribal Gaming Authority (the “Authority”)
                                                                                                                                                                    basis. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful lives of the improvements. Useful life estimates of
   in July 1995 with the exclusive power to conduct and regulate gaming activities for the Tribe on Tribal lands and the non-exclusive authority to conduct
                                                                                                                                                                    asset categories are as follows:
   such activities elsewhere. The Tribe is a federally recognized Indian tribe with an approximately 507-acre reservation located in southeastern Connecticut.
   Under the Indian Gaming Regulatory Act of 1988, federally recognized Indian tribes are permitted to conduct full-scale casino gaming operations on tribal                   Buildings and land improvements                                                      40 years
   land, subject to, among other things, the negotiation of a compact with the affected state. The Tribe and the State of Connecticut have entered into such                   Furniture and equipment                                                             3-7 years
   a compact (the “Mohegan Compact”), which has been approved by the United States Secretary of the Interior. The Authority is primarily engaged in the
   ownership, operation and development of gaming facilities. On October 12, 1996, the Authority opened a casino known as Mohegan Sun. On January 25,               The costs of significant improvements are capitalized. Costs of normal repairs and maintenance are charged to expense as incurred. Gains or losses on
   2005, the Authority purchased Pocono Downs, a harness racing facility now known as Mohegan Sun at Pocono Downs, and five off-track wagering (“OTW”)              disposition of property and equipment are included in the determination of net income.
   facilities located in Pennsylvania. The Authority is governed by a nine-member Management Board, consisting of the same nine members as those of the             In accordance with Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the
   Mohegan Tribal Council (the governing body of the Tribe). Any change in the composition of the Tribal Council results in a corresponding change in the           Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), the carrying value of the Authority’s assets is reviewed when events or changes in circumstances
   Authority’s Management Board.                                                                                                                                    indicate that the carrying amount of an asset may not be recoverable. If it is determined that an impairment loss has occurred based on current and future
   As of September 30, 2006, the Authority has the following wholly owned subsidiaries: Mohegan Basketball Club LLC (“MBC”), Mohegan Ventures-                      levels of income and expected future cash flows as well as other factors, then an impairment loss is recognized in the consolidated statement of income.
   Northwest, LLC (“Mohegan Ventures-NW”), and Mohegan Commercial Ventures PA, LLC (“MCV-PA”). Refer to Note 18 for the creation of another subsidiary              The Authority believes no such impairment exists at September 30, 2006.
   by the Authority. MBC owns and operates a professional basketball team in the Women’s National Basketball Association (“WNBA”), the Connecticut Sun,
   and owns approximately 3.6% of the membership interests in WNBA, LLC. As of September 30, 2006, Mohegan Ventures-NW and the Tribe hold a 49.15%                  CAPITALIzED INTEREST
   and 5.00% membership interest in Salishan-Mohegan LLC (“Salishan-Mohegan”), respectively, formed with an unrelated third party to participate in the             The interest cost associated with major development and construction projects is capitalized and included in the cost of the project. When no debt is
   development and management of a casino to be owned by the federally recognized Cowlitz Indian Tribe and located in Clark County, Washington (the                 incurred specifically for a project, interest is capitalized on amounts expended on the project using the weighted-average cost of the Authority’s outstanding
   “Cowlitz Project”). Refer to Note 18 for changes to membership interest in Salishan-Mohegan subsequent to September 30, 2006. MCV-PA holds a 0.01%               borrowings. Capitalization of interest ceases when the project is substantially complete or development activity is suspended for more than a brief period.
   general partnership interest in Downs Racing, L.P., Backside, L.P., Mill Creek Land, L.P., and Northeast Concessions, L.P. (collectively, the “Pocono Downs
   entities”), while the Authority holds a 99.99% limited partnership interest in each such entity. The Pocono Downs entities own and operate Mohegan Sun
   at Pocono Downs and the OTW facilities in Pennsylvania. The Authority views Mohegan Sun and the properties owned by the Pocono Downs entities as                 GOODWILL
   separate operating segments.                                                                                                                                     In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), the goodwill associated with the acquisition of the Pocono Downs
                                                                                                                                                                    entities (see Note 3) is not subject to amortization but is tested at least annually for impairment by comparing the fair value of the recorded assets to their
                                                                                                                                                                    carrying amount. If the carrying amount of the goodwill exceeds its fair value, an impairment loss will be recognized immediately. The Authority assessed
   NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:                                                                                                               the goodwill for impairment and determined there was no impairment of goodwill at September 30, 2006.

   PRINCIPLES OF CONSOLIDATION                                                                                                                                      OTHER INTANGIBLE ASSETS
   The consolidated financial statements include the accounts of the Authority and its wholly owned subsidiaries. In accordance with the Financial Accounting       In connection with the Relinquishment Agreement (see Note 13), Trading Cove Associates (“TCA”) granted the Authority an exclusive, irrevocable, perpetual,
   Standard Board (“FASB”) Interpretation No. 46(R), “Consolidation of Variable Interest Entities (revised December 2003)—an interpretation of ARB No. 51”          world-wide and royalty-free license with respect to trademarks and other similar rights, including the “Mohegan Sun” name used at or developed for Mohegan
   (“FIN 46”), the accounts of Salishan-Mohegan are consolidated into the accounts of Mohegan Ventures-NW as it is deemed to be the primary beneficiary.            Sun. The trademarks were appraised by an independent valuation firm to have a value of $130.0 million. The independent valuation firm used
   In consolidation, all intercompany balances and transactions have been eliminated.                                                                               the Income Approach—Relief from Royalty Method. The balance of the trademark is as follows (in thousands):

                                                                                                                                                                                                                                                                                                                        As of September 30,
   CASH AND CASH EQUIVALENTS                                                                                                                                                                                                                                                                                2006                      2005
   The Authority classifies as cash and cash equivalents deposits that can be redeemed on demand and investments with a maturity of three months or less                       Trademark                                                                                                             $ 130,000               $ 130,000
   when purchased. Cash equivalents are carried at cost, which approximates market value.                                                                                      Accumulated amortization                                                                                                 (10,308)                (10,308)
                                                                                                                                                                               Trademark, net                                                                                                        $ 119,692               $ 119,692

   RECEIVABLES
   Accounts receivable consists primarily of casino receivables, which represent credit extended to approved casino customers, and hotel and other non-             In accordance with SFAS 142, the Mohegan Sun trademark is no longer subject to amortization over its estimated useful life as it has been deemed to have
   gaming receivables. The Authority maintains an allowance for doubtful accounts which is based on management’s estimate of the amount expected to be              an indefinite useful life. However, SFAS 142 requires the trademark to be evaluated at least annually for impairment by applying a fair-value based test and, if
   uncollectible considering historical experience and the information management obtains regarding the creditworthiness of the customer. Future business           impairment occurs, the amount of the impaired trademark must be written off immediately. The Authority applied the fair value test as of September 30, 2006
   or economic trends could affect the collectibility of these receivables.                                                                                         and determined that no impairment existed.

   Receivables from affiliates, which are recorded in other assets in the accompanying consolidated balance sheet, consist primarily of reimbursable costs          In January 2005, the Authority and its wholly owned subsidiary, MCV-PA, acquired all the partnership interests in the Pocono Downs entities. As part of
   and expenses incurred by Salishan-Mohegan for the development of a casino in La Center, Washington to be owned by the Cowlitz Indian Tribe (see Note 15).        the acquisition, the Authority gained the right to apply for a Category One Slot Machine License determined by management, with the assistance from a
   The receivables are payable upon (1) the receipt of necessary financing for the development of the proposed casino and (2) the related property being taken      third party valuation firm, to be an intangible asset with an indefinite useful life and a fair value of $214.0 million (see Notes 3 and 18). The third party
   into trust by the United States Department of the Interior. Due to the inherent uncertainty in the development of this casino project, the Authority maintains   valuation firm used the Income Approach – Excess Earnings Method. This intangible asset is assessed at least annually for impairment pursuant to
   a reserve for doubtful collection of these receivables, which is based on management’s estimate of the probability that the receivables will be collected.       SFAS 142. The Authority applied the fair value test as of September 30, 2006 and determined that no impairment existed.
   Future complications in the receipt of financing, the relevant land being taken into trust or other matters affecting the development of the casino could
                                                                                                                                                                    In January 2003, MBC acquired a membership in the WNBA and the right to own and operate a professional basketball team in the WNBA. As part of the
   affect the collectibility of the receivables.
                                                                                                                                                                    acquisition, management, with the assistance of an independent valuation firm, estimated a fair value for the player roster value, which is recorded as an
                                                                                                                                                                    intangible asset on the accompanying consolidated balance sheet, and the remainder of the acquisition cost has been recorded as franchise value, which is
   INVENTORIES                                                                                                                                                      also included on the accompanying consolidated balance sheet. These assets are being amortized on a straight-line basis over their estimated useful lives.
   Inventories are stated at the lower of cost or market and consist principally of food and beverage, retail, hotel and operating supplies. Cost is determined     The Authority writes off a portion of the player roster value intangible asset and the related accumulated amortization when a Connecticut Sun player contract
   using an average cost method. The Authority reduces the carrying value of slow moving inventory to net realizable value, which is based on management’s          that was part of the original player roster is terminated. The loss associated with the write-off is included in depreciation and amortization expense in the
   estimate of the amount of inventory that may not be used in future casino operations considering the length of time items are held in inventory and              accompanying consolidated statements of income. Refer to Note 14 for further discussion regarding the Authority’s accounting for these assets.
   information management obtains regarding the plans to utilize this inventory. Future business trends could affect the timely use of inventories.
                                                                                                                                                                    DEFERRED FINANCING COSTS
                                                                                                                                                                    Debt issuance costs incurred in connection with the issuance of long-term debt are capitalized and amortized to interest expense based on the related debt
                                                                                                                                                                    agreements using the effective interest method or the straight-line method, which approximates the effective interest method. The unamortized amounts
                                                                                                                                                                    are included in other assets in the accompanying consolidated balance sheets.
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   UNREDEEMED PLAYER’S CLUB POINTS                                                                                                                                           PROMOTIONAL ALLOWANCES
   The Authority maintains an accrual for unredeemed Player’s Club points. The accrual is based on the estimated cost of the points expected to be redeemed                  The Authority operates the Mohegan Sun complimentary program in which food and beverage, hotel, retail, entertainment and other services are provided to
   as of the respective balance sheet date. Management determines the adequacy of this accrual by periodically evaluating the historical redemption experience               guests based on points that are earned through the Mohegan Sun Player’s Club. The retail value of these complimentary items is included in gross revenues
   and projected trends related to this accrual. Actual results could differ from those estimates.                                                                           and then deducted as promotional allowances, except for the redemption at third party tenant restaurants and The Shops at Mohegan Sun, which are
                                                                                                                                                                             charged directly to gaming expenses.
   SELF-INSURANCE ACCRUALS                                                                                                                                                   The Authority also has ongoing promotional programs which offer coupons to its guests for the purchase of food, beverages, hotel and retail amenities
   The Authority is self-insured up to certain limits for costs associated with workers’ compensation and employee medical coverage. Liabilities for insurance               offered at Mohegan Sun. The retail value of items or services purchased with coupons at Mohegan Sun operated facilities is included in gross revenues
   claims and reserves include accruals of estimated settlements for known claims, as well as accruals of estimates of incurred but not reported claims. These               and the respective coupon value is deducted as promotional allowances to arrive at net revenues.
   accruals are included in other current liabilities in the accompanying consolidated balance sheet. In estimating these costs, the Authority considers historical
                                                                                                                                                                             The retail value of providing such promotional allowances was included in revenues as follows (in thousands):
   loss experience and makes judgments about the expected levels of costs per claim. The Authority also uses information provided by independent consultants
   to assist in the determination of estimated accruals. These claims are accounted for based on estimates of the undiscounted claims, including those claims                                                                                                                                                   For the Fiscal Years Ended September 30,
   incurred but not reported. The Authority believes the use of these estimates to account for these liabilities provides a consistent and effective way to                                                                                                                                  2006                    2005                         2004
   measure these accruals; however, changes in health care costs, accident frequency and severity and other factors can materially affect the estimate for                              Food and beverage                                                                            $    46,894            $     44,757               $       43,393
   these liabilities. The Authority continually monitors the potential changes in future estimates, evaluates insurance accruals and makes adjustments                                  Hotel                                                                                              17,356                  16,292                       14,166
   when necessary.                                                                                                                                                                      Retail, entertainment and other                                                                   60,667                  64,099                       53,448

                                                                                                                                                                                           Total                                                                                     $    124,917           $     125,148              $       111,007
   RELINQUISHMENT LIABILITY
   The Authority, in accordance with SFAS No. 5, “Accounting for Contingencies” (“SFAS 5”), has recorded a relinquishment liability of the estimated
   present value of its obligations under the Relinquishment Agreement (see Note 13). The Authority reassesses projected revenues (and consequently                          The estimated cost of providing such promotional allowances was included in operating costs and expenses, primarily gaming, as follows (in thousands):
   the relinquishment liability) (i) annually in conjunction with the Authority’s budgeting process or (ii) when necessary to account for material increases
                                                                                                                                                                                                                                                                                                                For the Fiscal Years Ended September 30,
   or decreases in projected revenues over the relinquishment period. If the reassessment causes an overall increase to the projected revenues subject to
                                                                                                                                                                                                                                                                                             2006                    2005                         2004
   the Relinquishment Agreement over the relinquishment period, the relinquishment liability will be increased by five percent of such increases in revenues,                           Food and beverage                                                                            $    48,352            $     44,877               $       42,837
   discounted at the Authority’s risk-free rate of investment (an incremental layer). If the reassessment causes an overall decrease to the projected revenues                          Hotel                                                                                              8,734                    7,731                       5,916
   subject to the Relinquishment Agreement over the relinquishment period, the relinquishment liability will be decreased by five percent of such decrease in                           Retail, entertainment and retail                                                                  46,874                  49,372                       42,496
   revenues, discounted based upon a weighted-average discount rate (a decremental layer). The weighted-average discount rate is defined as the average
   discount rate used to discount all previous incremental layers weighted by the amount of each such incremental layer. Further, the Authority records                                    Total                                                                                     $   103,960            $    101,980               $       91,249
   accretion to the relinquishment liability to reflect the impact of the time value of money. Since there is a high level of estimates and judgments used with
   respect to calculating the relinquishment liability, future events that affect such estimates and judgments may cause the actual liability to differ significantly
   from the estimate.                                                                                                                                                        The Authority records free or discounted food and beverage and other services in accordance with Emerging Issues Task Force Issue No. 01-9 “Accounting
                                                                                                                                                                             for Consideration Given by a Vendor to a Customer or a Reseller of the Vendor’s Products.” The Authority offers cash inducements and discounts on patron
                                                                                                                                                                             losses in certain circumstances that result in a reduction to gaming revenues. The offsets to gaming revenues were $11.2 million, $4.4 million, and $1.0 million
   FAIR VALUE OF FINANCIAL INSTRUMENTS
                                                                                                                                                                             relating to discounts provided on patron losses for fiscal years ending September 30, 2006, 2005 and 2004, respectively, and $577,000, $266,000 and
   The fair value amounts presented below are reported to satisfy the disclosure requirements of SFAS No. 107, “Disclosures about Fair Values of Financial                   $281,000 relating to Player’s Club points redeemed for cash for the fiscal years ended September 30, 2006, 2005 and 2004, respectively.
   Instruments” (“SFAS 107”), and are not necessarily indicative of the amounts that the Authority could realize in a current market exchange.

   The carrying amount of cash and cash equivalents, promissory notes, mortgages and bank financing facilities approximate fair value. The fair value of the                 GAMING EXPENSES
   Authority’s other financing facilities is as follows (in millions):                                                                                                       Gaming expenses primarily include the slot win contribution, which the Authority is required to pay to the State of Connecticut (see Note 12), expenses
                                                                                                                                                       As of September 30,
                                                                                                                                                                             associated with operation of slot machines, table games, keno, live harness racing at Pocono Downs and racebook, certain marketing expenses, and
                                                                                                                                           2006                     2005
                                                                                                                                                                             promotional expenses for the Mohegan Sun Player’s Club points and coupons redeemed at the hotel, restaurants and retail outlets owned by Mohegan Sun,
              1999 8 1⁄8 % Senior Notes                                                                                             $        —            $           14.1
                                                                                                                                                                             as well as third party tenant restaurants and The Shops at Mohegan Sun.
              2005 6 1⁄8 % Senior Notes                                                                                             $     244.4           $        248.8
              2001 8 3⁄8 % Senior Subordinated Notes                                                                                $       17.0          $          17.4
              2002 8% Senior Subordinated Notes                                                                                     $     258.8           $        263.8     ADVERTISING
              2003 6 3⁄8 % Senior Subordinated Notes                                                                                $     327.5           $       330.0      The Authority expenses the production costs of advertising the first time the advertising takes place. Prepaid rental fees associated with billboard advertising
              2004 7 1⁄8 % Senior Subordinated Notes                                                                                $     223.9           $        232.9     are capitalized and amortized over the term of the related rental agreement. Total advertising costs for the fiscal years ended September 30, 2006, 2005
              2005 6 7⁄8 % Senior Subordinated Notes                                                                                $     146.3           $        153.0     and 2004 were $39.3 million, $39.8 million and $37.3 million, respectively. Prepaid advertising on the Authority’s balance sheet at September 30, 2006
                                                                                                                                                                             and 2005 was $573,000 and $43,000, respectively.

   The estimated fair value of the Authority’s other financing facilities was based on quoted market prices on or about September 30, 2006.


   REVENUE RECOGNITION
   The Authority recognizes gaming revenue as gaming wins less gaming losses. Revenues from food and beverage, hotel, retail, entertainment and other
   services are recognized at the time the service is performed. Minimum rental revenues are recognized on a straight-line basis over the terms of the related
   leases. Percentage rents are recognized in the period in which the tenants exceed their respective percentage rent thresholds.




46 |                                                                                                                                                                                                                                                                                                                                            47 |
   CORPORATE EXPENSES                                                                                                                                               NEW ACCOUNTING PRONOUNCEMENTS
   Corporate expenses represent unallocated payroll costs, professional fees and various other expenses not directly related to the Authority’s operations at       In May 2005, the FASB issued SFAS 154, “Accounting Changes and Error Corrections—a replacement of APB Opinion No. 20 and FASB Statement No. 3”
   Mohegan Sun or Pocono Downs. In addition, corporate expenses include the costs associated with the Authority’s evaluation and pursuit of new business            (“FAS 154”). FAS 154 requires retrospective application to prior periods’ financial statements of changes in accounting principle, subject to certain
   opportunities, which are expensed as incurred until development of a specific project has become probable.                                                       practicability provisions, but does not change the guidance in APB Opinion No. 20 for reporting the correction of an error in previously issued financial
                                                                                                                                                                    statements and a change in accounting estimate. FAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning
                                                                                                                                                                    after December 15, 2005. The Authority does not believe the adoption of this standard will have a material impact on its financial position, results of
   PRE-OPENING COSTS AND EXPENSES
                                                                                                                                                                    operations or cash flows.
   For the fiscal years ended September 30, 2006 and 2005, pre-opening costs and expenses consisted primarily of direct incremental personnel, consulting
   and other costs associated with the development of a Phase I slot machine facility at Mohegan Sun at Pocono Downs. Construction of the Phase I facility          In September 2006, the FASB issued SFAS 157, “Fair Value Measurements” (“FAS 157”). FAS 157 defines fair value, establishes a framework for measuring
   began in September 2005. In accordance with the American Institute of Certified Public Accountants’ Statement of Position 98-5, “Reporting on the Costs          fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This standard does not require any new
   of Start-Up Activities,” pre-opening costs and expenses were expensed as incurred.                                                                               fair value measurements. FAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within
                                                                                                                                                                    those fiscal years. The Authority does not believe the adoption of this standard will have a material impact on its financial position, results of operations
                                                                                                                                                                    or cash flows.
   DERIVATIVE INSTRUMENTS
   The Authority uses derivative instruments, including interest rate caps, collars and swaps in its strategy to manage interest rate risk associated with the      In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108 (“SAB 108”), which provides guidance on the
   variable interest rate on its bank credit facility and the fixed interest rates on the Authority’s senior notes and senior subordinated notes. The Authority’s   consideration of the effects of prior year financial statement misstatements in quantifying current year financial statement misstatements for the purpose
   objective in managing interest rate risk is to achieve the lowest possible cost of debt for the Authority, and to manage volatility in the effective cost of     of a materiality assessment. SAB 108 is effective for annual financial statements issued for fiscal years ending after November 15, 2006. The Authority does
   debt. The Authority continually monitors risk exposures from derivative instruments held and makes the appropriate adjustments to manage these risks             not believe the application of this guidance will have a material impact on its financial position, results of operations or cash flows.
   within management’s established limits. The Authority accounts for its derivative instruments in accordance with SFAS No. 133, “Accounting for Derivative
   Instruments and Hedging Activities” (“SFAS 133”), which requires that all derivative instruments be recorded on the consolidated balance sheet at fair value.
                                                                                                                                                                    NOTE 3—ACQUISITION OF POCONO DOWNS ENTITIES:
   In order for derivative instruments to qualify for hedge accounting in accordance with SFAS 133, the underlying hedged item must expose the Authority to
                                                                                                                                                                    On January 25, 2005, the Authority and its wholly owned subsidiary, MCV-PA, completed their acquisition of all the partnership interests in the
   risks associated with market fluctuations and the financial instrument used must be designated as a hedge and must reduce the Authority’s exposure to
                                                                                                                                                                    Pocono Downs entities for approximately $281.0 million in cash. The results of operations for the Pocono Downs entities are included in the accompanying
   market fluctuation throughout the hedge period. If these criteria are not met, a change in the market value of the financial instrument is recognized as a
                                                                                                                                                                    consolidated financial statements from the date of acquisition through September 30, 2006.
   gain or loss and is recorded as a component of interest expense in the period of change. The Authority excludes the change in the time value of money when
   assessing the effectiveness of the hedging relationship. All derivatives are evaluated quarterly.                                                                The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition, which were estimated by management
                                                                                                                                                                    with assistance from a third party valuation firm. The right to apply for a Category One slot machine license was determined to be an intangible asset with
   Derivative instruments entered into by the Authority which qualify for hedge accounting are designated as either a fair value hedge or a cash flow hedge:
                                                                                                                                                                    an indefinite life apart from goodwill. Certain other intangible assets were identified in the valuation process, but were not separated from goodwill due to
       	 •	A fair value hedge is a hedge of the fair value of a recognized asset or liability. For fair value hedge transactions, changes in fair value of the      immateriality of the amounts.
         derivative instrument are generally offset in the consolidated income statement by changes in the fair value of the item being hedged. Gains and losses                                                                                                                                                  At January 25, 2005
         on these hedges are capitalized as part of the original debt instrument and, upon termination, are amortized and recorded as a component of interest                                                                                                                                                           (in thousands)
         expense over the remaining term of the item being hedged.                                                                                                             Current assets                                                                                                                              $      1,086
       	 •	A cash flow hedge is a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or                Property and equipment                                                                                                                            31,370
         liability. For cash flow hedge transactions, changes in the fair value of the derivative instrument are reported in other comprehensive income. The                   Right to apply for a Category One slot machine license                                                                                         214,000
                                                                                                                                                                               Goodwill                                                                                                                                         39,459
         gains and losses on cash flow hedge transactions reported in other comprehensive income are reclassified to earnings in the periods in which
                                                                                                                                                                                   Total assets acquired                                                                                                                       285,915
         earnings are affected by the variability of the cash flows of the hedged item.
                                                                                                                                                                               Current liabilities                                                                                                                              (4,926)
   Net interest paid or received pursuant to derivative instruments is included as a component of interest expense in the period. Pending interest settlements                     Total liabilities assumed                                                                                                                    (4,926)
   earned on derivative instruments held at the end of a period are also included as a component of interest expense and in the accompanying consolidated                      Net assets acquired                                                                                                                         $ 280,989
   balance sheet. In addition, current and long-term portions of the fair value of derivative instruments held are separately recorded in the accompanying
   consolidated balance sheet. The current portion is based on estimated interest settlements for the subsequent one-year period for derivative instruments         On August 7, 2006, the Authority and the seller, a subsidiary of Penn National, entered into an amendment of the Pocono Downs Purchase Agreement.
   held and the long-term portion is based on estimated interest settlements through the remaining maturity of the instruments. These estimates are based           Penn National joined in this amendment to confirm its continuing guaranty of the performance of its subsidiaries under the Pocono Downs Purchase Agreement,
   on forward-looking LIBOR curves at the consolidated balance sheet date. The Authority did not have any derivative instruments as of September 30, 2006           as amended. Pursuant to the amendment, the Authority will receive an aggregate refund of $30.0 million of the original purchase price for the Pocono Downs
   or 2005.                                                                                                                                                         entities, payable in five annual installments of $7.0 million, $7.0 million, $6.5 million, $6.0 million and $3.5 million on November 14, 2007, 2008, 2009,
                                                                                                                                                                    2010 and 2011, respectively. Pursuant to the amendment, the seller and the Authority agreed to modify certain provisions of the Pocono Downs Purchase
                                                                                                                                                                    Agreement, including: 1) the elimination of the Authority’s post-closing termination rights; 2) the elimination of the seller’s indemnification obligations for
   INCOME TAXES
                                                                                                                                                                    costs in excess of $2.0 million incurred with respect to remedial actions in connection with certain environmental conditions at the Pocono Downs facility;
   The Tribe is a sovereign Indian nation with independent legal jurisdiction over its people and its lands. Like other sovereign governments, the Tribe and its    and 3) the elimination of certain other post-closing indemnification obligations of the seller, including those relating to claims asserted in connection with a
   entities, including the Authority, are not subject to federal, state or local income taxes.                                                                      specific property tax matter (see Note 12). Pursuant to SFAS 141, “Business Combinations”, and other relevant accounting guidance, the $24.5 million present
                                                                                                                                                                    value of the payments for the $30.0 million refund, calculated utilizing the Authority’s risk-free rate of investment, was recorded as a non-current receivable
   MANAGEMENT’S USE OF ESTIMATES                                                                                                                                    in other assets in the consolidated balance sheet as of September 30, 2006 and as a non-operating gain in other income in the consolidated statement of
                                                                                                                                                                    income for the fiscal year ended September 30, 2006. The difference between the present value and the contract value of $30.0 million will
   The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires
                                                                                                                                                                    be recorded as other non-operating income over the duration of the payment schedule.
   management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures of
   contingent assets and liabilities. The most significant estimates included in the accompanying consolidated financial statements relate to the relinquishment
   liability, the liability associated with unredeemed Player’s Club points and employee medical coverage and workers’ compensation self-insurance reserves.
   Actual results could differ from those estimates.


   RECLASSIFICATIONS
   Certain amounts in the fiscal year 2005 and 2004 consolidated financial statements have been reclassified to conform to the fiscal year 2006 presentation.




48 |                                                                                                                                                                                                                                                                                                                        49 |
   NOTE 4—CASH AND CASH EQUIVALENTS:                                                                                                                                   NOTE 8—FINANCING FACILITIES:
   At September 30, 2006 and 2005, the Authority had cash and cash equivalents of $75.2 million and $72.4 million, respectively, of which $980,000 and                 Financing facilities, as described below, consisted of the following (in thousands):
   $3.2 million, as of September 30, 2006 and 2005, were invested in deposits that could be redeemed on demand and investments with original maturities
                                                                                                                                                                                                                                                                                                                           As of September 30,
   of less than three months when purchased. For reporting purposes, cash and cash equivalents include all operating cash and in-house funds.
                                                                                                                                                                                                                                                                                                               2006                       2005
                                                                                                                                                                                  Bank Credit Facility                                                                                                $          —               $             —

   NOTE 5—RECEIVABLES, NET:                                                                                                                                                       1999 8 1⁄8 % Senior Notes                                                                                                      —                      13,970
                                                                                                                                                                                  2005 6 1⁄8 % Senior Notes                                                                                               250,000                    250,000
   Components of receivables, net are as follows (in thousands):                                                                                                                  2001 8 3⁄8 % Senior Notes                                                                                                 16,345                     16,345
                                                                                                                                                                                  2002 8 % Senior Subordinated Notes                                                                                      250,000                    250,000
                                                                                                                                                 As of September 30,
                                                                                                                                                                                  2003 6 3⁄8 % Senior Subordinated Notes                                                                                  330,000                    330,000
                                                                                                                                        2006                   2005
              Gaming                                                                                                           $     23,972           $      9,896                2004 7 1⁄8 % Senior Subordinated Notes                                                                                   225,000                    225,000
              Hotel                                                                                                                    1,318                  2,471               2005 6 7⁄8 % Senior Subordinated Notes                                                                                    150,000                    150,000
              Other                                                                                                                   5,296                  5,595                WNBA Promissory Note                                                                                                        5,000                      6,000
                                                                                                                                                                                  Line of Credit                                                                                                                  —                          —
              Subtotal                                                                                                               30,586                  17,962               Mortgage-Salishan-Mohegan                                                                                                   2,550                      2,550
              Allowance for doubtful accounts                                                                                         (3,444)                (2,434)                        Subtotal                                                                                                      1,228,895                  1,243,865
                                                                                                                                                                                  Net deferred gain on derivative instruments sold                                                                              459                          15
              Total receivables, net                                                                                           $      27,142          $      15,528
                                                                                                                                                                                  Total debt                                                                                                          $ 1,229,354                $ 1,243,880


   NOTE 6—PROPERTY AND EQUIPMENT, NET:                                                                                                                                 Maturities of the Authority’s debt as of September 30, 2006 are as follows (in thousands):

   Components of property and equipment, net are as follows (in thousands):                                                                                                                Fiscal Year                                                                                                                Long-Term Debt Maturities
                                                                                                                                                                                           2007                                                                                                                                  $      3,550
                                                                                                                                                 As of September 30,                       2008                                                                                                                                         1,000
                                                                                                                                        2006                   2005                        2009                                                                                                                                      331,000
              Land                                                                                                            $       60,007          $      43,906                        2010                                                                                                                                         1,000
              Land improvements                                                                                                        48,317                 48,317                       2011                                                                                                                                        17,345
              Buildings and improvements                                                                                           1,268,544              1,257,948                        Thereafter                                                                                                                                875,000
              Furniture and equipment                                                                                                382,382                354,920                        Subtotal                                                                                                                              $ 1,228,895
              Construction in process                                                                                                 48,873                  13,616

              Subtotal                                                                                                             1,808,123              1,718,707
                                                                                                                                                                       BANk CREDIT FACILITY
              Less: accumulated depreciation                                                                                       (468,300)              (396,016)
                                                                                                                                                                       As of September 30, 2006, the Authority has a loan agreement for up to $450.0 million from a syndicate of financial institutions and commercial banks, with
              Total property plant and equipment, net                                                                         $ 1,339,823             $ 1,322,691      Bank of America, N.A. serving as administrative agent (the “Bank Credit Facility”). The Bank Credit Facility is comprised of a revolving loan of up to $450.0
                                                                                                                                                                       million, which matures on March 31, 2008. In December 2005, the Authority received the requisite consent from its lenders to amend the bank credit facility
   For the fiscal years ended September 30, 2006, 2005 and 2004 depreciation expense totaled $87.2 million, $86.5 million and $91.7 million, respectively.             to permit the Authority to increase the maximum amount available under letters of credit to $60.0 million, enabling the Authority to establish the $50.0
   Capitalized interest totaled $1.2 million and $21,000 for the fiscal years ended September 30, 2006 and 2005. There was no capitalized interest for the             million letter of credit as required by the Pennsylvania Gaming Control Board (the “PGCB”) (refer to Note 18). Taking into effect this and other letters of
   fiscal year ended September 30, 2004.                                                                                                                               credit, which reduced borrowing availability under the bank credit facility, the Authority had approximately $399.3 million of available borrowing under the
                                                                                                                                                                       Bank Credit Facility as of September 30, 2006 (without taking into account covenants under the Line of Credit described below). The revolving loan has no
                                                                                                                                                                       mandatory amortization provisions and is payable in full at maturity.
   NOTE 7—OTHER CURRENT ASSETS AND OTHER CURRENT LIABILITIES:
                                                                                                                                                                       The Bank Credit Facility is collateralized by a lien on substantially all of the Authority’s assets, including the assets of the Pocono Downs entities, and a
   Components of other current assets are as follows (in thousands):                                                                                                   leasehold mortgage on the land and improvements which comprise Mohegan Sun. The Authority will also be required to pledge additional assets as collateral
                                                                                                                                                                       for the Bank Credit Facility as it or its guarantor subsidiaries acquire them. Effective August 4, 2006 and as of September 30, 2006, the Authority’s
                                                                                                                                                 As of September 30,
                                                                                                                                                                       obligations under the Bank Credit Facility are guaranteed by MBC, Mohegan Ventures-NW, MCV-PA and the Pocono Downs entities (refer to Notes 15 and
                                                                                                                                        2006                   2005
                                                                                                                                                                       18). The Bank Credit Facility subjects the Authority to a number of restrictive covenants, including financial covenants. These financial covenants relate to,
              Prepaid expenses                                                                                                 $      11,098          $       5,185
                                                                                                                                                                       among other things, its permitted total debt and senior debt leverage ratios, its minimum fixed charge coverage ratio and the Authority’s maximum capital
              Non-qualified deferred compensation                                                                                     8,869                  7,008
                                                                                                                                                                       expenditures. The Bank Credit Facility includes non-financial covenants by the Authority and the Tribe of the type customarily found in loan agreements for
              Total other current assets                                                                                       $      19,967          $      12,193    similar transactions including requirements that:

                                                                                                                                                                         • the Tribe preserve its existence as a federally recognized Indian tribe;
   Components of other current liabilities are as follows (in thousands):                                                                                                • the Tribe cause the Authority to continually operate Mohegan Sun in compliance with all applicable laws; and
                                                                                                                                                 As of September 30,     • except under specific conditions, limit the Authority from selling or disposing of its assets, limit the transfer of the Authority’s and its guarantor
                                                                                                                                          2006                 2005        subsidiaries’ assets to non-guarantor subsidiaries, limit the incurrence by the Authority and its guarantor subsidiaries of other debt or contingent
              Accrued payroll and related taxes and benefits                                                                   $     53,876           $      47,193        obligations and limit the Authority’s and its guarantor subsidiaries’ ability to extend credit, make investments or commingle their assets with assets
              Slot win contribution payable (note 12)                                                                                19,547                  18,738        of the Tribe.
              Miscellaneous other current liabilities                                                                                55,616                 50,638
                                                                                                                                                                       As of September 30, 2006, the Authority and the Tribe were in compliance with all of their respective covenant requirements in the Bank Credit Facility.
              Total other current liabilities                                                                                  $ 129,039              $     116,569




50 |                                                                                                                                                                                                                                                                                                                                    51 |
   At the Authority’s option, each advance of loan proceeds accrues interest on the basis of a base rate or on the basis of a one-month, two-month, three-month,      2002 8% SENIOR SUBORDINATED NOTES
   six-month or twelve-month London Inter-Bank Offered Rate (“LIBOR”), plus in either case, the applicable spread discussed below. The Authority also pays
                                                                                                                                                                      In February 2002, the Authority issued $250.0 million Senior Subordinated Notes with fixed interest payable at a rate of 8.0% per annum (the “2002
   commitment fees for the unused portion of the revolving loan on a quarterly basis equal to the applicable spread for commitment fees times the average daily
                                                                                                                                                                      Senior Subordinated Notes”). The proceeds from this financing were used to pay transaction costs and pay down $243.0 million on the prior bank credit
   unused commitment for that calendar quarter. Applicable spreads are based on the Authority’s Total Leverage Ratio, as defined in the Bank Credit Facility.
                                                                                                                                                                      facility. Interest on the 2002 Senior Subordinated Notes is payable semi-annually on April 1 and October 1. The 2002 Senior Subordinated Notes mature on
   The applicable spread for base rate advances is between 0.50% and 1.25%, and the applicable spread for LIBOR rate advances is between 1.75% and 2.50%.
                                                                                                                                                                      April 1, 2012. The first call date for the 2002 Senior Subordinated Notes is April 1, 2007. The 2002 Senior Subordinated Notes are uncollateralized general
   The applicable spread for commitment fees is between 0.375% and 0.50%. The base rate is the higher of Bank of America’s announced prime rate or the
                                                                                                                                                                      obligations of the Authority and are subordinated to the Bank Credit Facility, the 1999 Senior Notes, the 2005 Senior Notes and, in a liquidation, bankruptcy
   federal funds rate plus 0.50%. Interest on LIBOR loans is payable at the end of each applicable interest period or quarterly in arrears, if earlier. Interest on
                                                                                                                                                                      or similar proceeding, 50% of the Authority’s payment obligations under the Relinquishment Agreement that are then due and owing. The 2002 Senior
   base rate advances is payable quarterly in arrears. As of September 30, 2006, the Authority had no base rate loans and no LIBOR rate loans outstanding.
                                                                                                                                                                      Subordinated Notes rank equally with the 2001 Senior Subordinated Notes, the 2003 Senior Subordinated Notes, the 2004 Senior Subordinated Notes, the
   The applicable spread for commitment fees was 0.50% as of September 30, 2006. Accrued interest, including commitment fees, on the Bank Credit Facility
                                                                                                                                                                      2005 Senior Subordinated Notes and the remaining 50% of the Authority’s payment obligations under the Relinquishment Agreement that are then due and
   was $825,000 and $595,000 as of September 30, 2006 and 2005, respectively.
                                                                                                                                                                      owing. Effective August 4, 2006 and as of September 30, 2006, MBC, Mohegan Ventures-NW, MCV-PA and the Pocono Downs entities are guarantors of the
                                                                                                                                                                      2002 Senior Subordinated Notes (refer to Notes 15 and 18). Refer to Note 17 for condensed consolidating financial information of the Authority, its guarantor
   1999 8 1⁄8 % SENIOR NOTES                                                                                                                                          subsidiaries and its non-guarantor subsidiaries. As of September 30, 2006 and September 30, 2005, accrued interest on the 2002 Senior Subordinated
   In March 1999, the Authority issued $200.0 million Senior Notes with fixed interest payable at a rate of 8.125% per annum (the “1999 Senior Notes”). The           Notes was $10.0 million.
   proceeds from this financing were used to extinguish or defease existing debt, pay transaction costs and fund initial costs related to the major expansion
   of Mohegan Sun known as Project Sunburst. In August 2004, the Authority completed a cash tender offer and consent solicitation to repurchase any or all            2003 6 3⁄8 % SENIOR SUBORDINATED NOTES
   of its outstanding 1999 Senior Notes. As part of the tender offer, the Authority solicited and received requisite consents to certain proposed amendments
                                                                                                                                                                      In July 2003, the Authority issued $330.0 million Senior Subordinated Notes with fixed interest payable at a rate of 6.375% per annum (the “2003
   to the indentures governing the 1999 Senior Notes which eliminated substantially all of the restrictive covenants there under. The aggregate principal
                                                                                                                                                                      Senior Subordinated Notes”). The proceeds from this financing were used to repurchase substantially all of the outstanding $300.0 million 8.75% Senior
   amount of 1999 Senior Notes tendered was $186.0 million. The remaining 1999 Senior Notes matured on January 1, 2006. On January 3, 2006, the
                                                                                                                                                                      Subordinated Notes issued in March 1999 and to pay fees and expenses associated with the issuance. Interest on the 2003 Senior Subordinated Notes
   outstanding principal amount of $14.0 million of the 1999 Senior Notes and accrued interest of $568,000 were paid. As of September 30, 2005,
                                                                                                                                                                      is payable semi-annually on January 15 and July 15. The 2003 Senior Subordinated Notes mature on July 15, 2009. The 2003 Senior Subordinated Notes
   accrued interest on the 1999 Senior Notes was $284,000.
                                                                                                                                                                      are uncollateralized general obligations of the Authority and are subordinated to the Bank Credit Facility, the 1999 Senior Notes, the 2005 Senior Notes
                                                                                                                                                                      and, in a liquidation, bankruptcy or similar proceeding, 50% of the Authority’s payment obligations under the Relinquishment Agreement that are then due
   2005 6 1⁄8 % SENIOR NOTES                                                                                                                                          and owing. The 2003 Senior Subordinated Notes rank equally with the 2001 Senior Subordinated Notes, the 2002 Senior Subordinated Notes, the 2004
   On February 8, 2005, the Authority issued $250.0 million Senior Notes with fixed interest payable at a rate of 6.125% per annum (the “2005 Senior Notes”)          Senior Subordinated Notes, the 2005 Senior Subordinated Notes and the remaining 50% of the Authority’s payment obligations under the Relinquishment
   The net proceeds from this financing were used to repay amounts outstanding under the Bank Credit Facility and to pay fees and expenses associated with            Agreement that are then due and owing. Effective August 4, 2006 and as of September 30, 2006, MBC, Mohegan Ventures-NW, MCV-PA and the Pocono
   the issuance. The 2005 Senior Notes mature on February 15, 2013. The first call date for the 2005 Senior Notes is February 15, 2009. Interest on the 2005          Downs entities are guarantors of the 2003 Senior Subordinated Notes (refer to Notes 15 and 18). Refer to Note 17 for condensed consolidating financial
   Senior Notes is payable semi-annually on February 15 and August 15. The 2005 Senior Notes are uncollateralized general obligations of the Authority, which         information of the Authority, its guarantor subsidiaries and its non-guarantor subsidiaries. As of September 30, 2006 and 2005, accrued interest on the
   are effectively subordinated to all of the existing and future senior secured indebtedness of the Authority, including the Bank Credit Facility. The 2005 Senior   2003 Senior Subordinated Notes was $4.4 million.
   Notes rank equally in right of payment with the 1999 Senior Notes and 50% of the Authority’s payment obligations under the Relinquishment Agreement
   that are then due and owing, and rank senior to the remaining 50% of the Authority’s payment obligations under the Relinquishment Agreement that are               2004 7 1⁄8 % SENIOR SUBORDINATED NOTES
   then due and owing, the 2001 Senior Subordinated Notes, the 2002 Senior Subordinated Notes, the 2003 Senior Subordinated Notes, the 2004 Senior
                                                                                                                                                                      In August 2004, the Authority issued $225.0 million Senior Subordinated Notes with fixed interest payable at a rate of 7.125% per annum (the “2004
   Subordinated Notes and the 2005 Senior Subordinated Notes. Effective August 4, 2006 and as of September 30, 2006, MBC, Mohegan Ventures-NW,
                                                                                                                                                                      Senior Subordinated Notes”). The net proceeds from this financing, together with $130.0 million of availability under the Bank Credit Facility, were used
   MCV-PA and the Pocono Downs entities are guarantors of the 2005 Senior Notes (refer to Notes 15 and 18). Refer to Note 17 for condensed consolidating
                                                                                                                                                                      to repurchase the outstanding 2001 Senior Subordinated Notes and the outstanding 1999 Senior Notes tendered in the tender offers described above and
   financial information of the Authority, its guarantor subsidiaries and its non-guarantor subsidiaries. As of September 30, 2006 and 2005, accrued interest
                                                                                                                                                                      to pay fees and expenses associated with the issuance. The 2004 Senior Subordinated Notes mature on August 15, 2014. The first call date for the 2004
   on the 2005 Senior Notes was $1.9 million.
                                                                                                                                                                      Senior Subordinated Notes is August 15, 2009. Interest on the 2004 Senior Subordinated Notes is payable semi-annually on February 15 and August 15. The
                                                                                                                                                                      2004 Senior Subordinated Notes are uncollateralized general obligations of the Authority and are subordinated to the Bank Credit Facility, the 1999 Senior
   2001 8 3⁄8 % SENIOR SUBORDINATED NOTES                                                                                                                             Notes, the 2005 Senior Notes and, in a liquidation, bankruptcy or similar proceeding, 50% of the Authority’s payment obligations under the Relinquishment
   In July 2001, the Authority issued $150.0 million Senior Subordinated Notes with fixed interest payable at a rate of 8.375% per annum (the “2001 Senior            Agreement that are then due and owing. The 2004 Senior Subordinated Notes rank equally with the 2001 Senior Subordinated Notes, the 2002 Senior
   Subordinated Notes”). The proceeds from this financing were used to pay transaction costs, pay down $90.0 million on the prior bank credit facility and            Subordinated Notes, the 2003 Senior Subordinated Notes, the 2005 Senior Subordinated Notes and the remaining 50% of the Authority’s payment
   fund costs related to Project Sunburst. Interest on the 2001 Senior Subordinated Notes is payable semi-annually on January 1 and July 1. The 2001 Senior           obligations under the Relinquishment Agreement that are then due and owing. Effective August 4, 2006 and as of September 30, 2006, MBC, Mohegan
   Subordinated Notes mature on July 1, 2011. The first call date for the 2001 Senior Subordinated Notes is July 1, 2006. The 2001 Senior Subordinated Notes          Ventures-NW, MCV-PA and the Pocono Downs entities are guarantors of the 2004 Senior Subordinated Notes (refer to Notes 15 and 18). Refer to Note 17
   are uncollateralized general obligations of the Authority and are subordinated to the Bank Credit Facility, the 1999 Senior Notes, the 2005 Senior Notes           for condensed consolidating financial information of the Authority, its guarantor subsidiaries and its non-guarantor subsidiaries. As of September 30, 2006
   and in a liquidation, bankruptcy or similar proceeding 50% of the Authority’s payment obligations under the Relinquishment Agreement that are then due             and 2005, accrued interest on the 2004 Senior Subordinated Notes was $2.0 million.
   and owing. The 2001 Senior Subordinated Notes rank equally with the 2002 Senior Subordinated Notes, the 2003 Senior Subordinated Notes, the 2004
   Senior Subordinated Notes, the 2005 Senior Subordinated Notes and the remaining 50% of the Authority’s payment obligations under the Relinquishment                2005 67⁄8 % SENIOR SUBORDINATED NOTES
   Agreement that are then due and owing. MBC is a guarantor of the 2001 Senior Subordinated Notes. Refer to Note 17 for condensed consolidating financial
                                                                                                                                                                      On February 8, 2005, the Authority issued $150.0 million Senior Subordinated Notes with fixed interest payable at a rate of 6.875% per annum (the “2005
   information of the Authority, its guarantor subsidiaries and its non-guarantor subsidiaries.
                                                                                                                                                                      Senior Subordinated Notes”). The net proceeds from this financing were used to repay amounts outstanding under the Bank Credit Facility and to pay
   In August 2004, the Authority completed a cash tender offer and consent solicitation to repurchase any or all of its outstanding 2001 Senior Subordinated          fees and expenses associated with the issuance. The 2005 Senior Subordinated Notes mature on February 15, 2015. The first call date for the 2005 Senior
   Notes. As part of the tender offer, the Authority solicited and received requisite consents to certain proposed amendments to the indentures governing the         Subordinated Notes is February 15, 2010. Interest on the 2005 Senior Subordinated Notes is payable semi-annually on February 15 and August 15. The
   2001 Senior Subordinated Notes, which eliminated substantially all of the restrictive covenants there under. The aggregate principal amount of 2001 Senior         2005 Senior Subordinated Notes are uncollateralized general obligations of the Authority and are subordinated to the Bank Credit Facility, the 1999 Senior
   Subordinated Notes tendered was $133.7 million. An aggregate principal amount of $16.3 million of the 2001 Senior Subordinated Notes remain outstanding            Notes, the 2005 Senior Notes and in a liquidation, bankruptcy or similar proceeding, 50% of the Authority’s payment obligations under the Relinquishment
   as of September 30, 2006. Accrued interest on the 2001 Senior Subordinated Notes was $342,000 as of September 30, 2006 and September 30, 2005.                     Agreement that are then due and owing. The 2005 Senior Subordinated Notes rank equally with the 2001 Senior Subordinated Notes, the 2002 Senior
                                                                                                                                                                      Subordinated Notes, the 2003 Senior Subordinated Notes, the 2004 Senior Subordinated Notes and the remaining 50% of the Authority’s payment
                                                                                                                                                                      obligations under the Relinquishment Agreement that are then due and owing. Effective August 4, 2006 and as of September 30, 2006, MBC, Mohegan
                                                                                                                                                                      Ventures-NW, MCV-PA and the Pocono Downs entities are guarantors of the 2005 Senior Subordinated Notes (refer to Notes 15 and 18). Refer to Note 17
                                                                                                                                                                      for condensed consolidating financial information of the Authority, its guarantor subsidiaries and its non-guarantor subsidiaries. As of September 30, 2006
                                                                                                                                                                      and September 30, 2005, accrued interest on the 2005 Senior Subordinated Notes was $1.3 million.

                                                                                                                                                                      The senior and senior subordinated note indentures contain certain financial and non-financial covenants with which the Authority and the Tribe must comply.
                                                                                                                                                                      The financial covenants include, among other things, limitations on restricted payments and the incurrence of indebtedness, while the non-financial covenants
                                                                                                                                                                      include, among other things, reporting obligations, compliance with laws and regulations and the Authority’s continued existence. As of September 30, 2006,
                                                                                                                                                                      both the Authority and the Tribe were in compliance with all of their respective covenant requirements in the senior and senior subordinated note indentures.

52 |                                                                                                                                                                                                                                                                                                                       53 |
   WNBA PROMISSORY NOTE                                                                                                                                            NOTE 9—LEASES:
   The Authority and MBC are parties to a membership agreement with WNBA, LLC (the “Membership Agreement”). The Membership Agreement sets forth
                                                                                                                                                                   The Authority leases space to certain tenants in The Shops at Mohegan Sun and certain other Mohegan Sun outlets. The Authority also leases, to third
   the terms and conditions pursuant to which MBC acquired a membership in the WNBA and the right to own and operate a professional basketball team in
                                                                                                                                                                   parties, the rights to utilize the Authority’s antenna on the Arena. Minimum future rental income and expenses on non-cancelable leases expected to be
   the WNBA. The Authority guaranteed the obligations of MBC under the Membership Agreement.
                                                                                                                                                                   incurred by the Authority is as follows (in thousands):
   In consideration for this acquisition, MBC paid $2.0 million (with funds advanced from the Authority) and issued a promissory note to the WNBA (the “WNBA                                                                                                                                                    Fiscal Year Ending September 30,
   Note”) for $8.0 million that accrues interest at an annual rate equal to three-month LIBOR plus 1.5%. The Authority guaranteed the obligations of MBC under                                              2007                2008                2009                2010                2011              Thereafter                   Total
   the WNBA Note. Pursuant to the WNBA Note, principal payments of $1.0 million, subject to adjustment for certain revenue thresholds, and interest payments
   are required to be paid to the WNBA on each anniversary of the WNBA Note. The WNBA Note is scheduled to mature in January 2011, but will mature no later        Minimum Future Rental Income         $ 3,847             $ 3,629            $ 3,775             $ 3,747             $ 3,733            $ 3,460                   $ 22,191
   than January 2013. As of September 30, 2006 and 2005, accrued interest on the WNBA Note was $224,000 and $191,000, respectively. Refer to Note 14 for
   a further discussion of the Authority’s investment in a WNBA franchise.                                                                                         The Authority is liable under various operating leases for equipment and buildings for the Pocono Downs properties, which expire in various years through
                                                                                                                                                                   2020. Total rental expense for the Pocono Downs properties $424,000 and $235,000 for the fiscal year ended September 30, 2006 and the period from the
                                                                                                                                                                   date of acquisition to September 30, 2005, respectively. Minimum future rental expense on non-cancelable leases expected to be incurred by the Authority is
   LINE OF CREDIT                                                                                                                                                  as follows (in thousands):
   The Authority has a $25.0 million revolving loan agreement with Bank of America (the “Line of Credit”). Each advance accrues interest on the basis
                                                                                                                                                                                                                                                                                                                Fiscal Year Ending September 30,
   of one-month LIBOR, plus the applicable spread, determined on the basis of the Authority’s Leverage Ratio as defined in the Line of Credit. Borrowings
                                                                                                                                                                                                            2007                2008               2009                 2010                2011              Thereafter                  Total
   under the Line of Credit are uncollateralized obligations of the Authority. The Line of Credit was amended in March 2006 to extend the maturity date
                                                                                                                                                                   Minimum Future Rental Expense        $    348            $   349            $    327            $    328            $    339           $      2,714              $ 4,405
   from March 31, 2006 to March 31, 2008. The Line of Credit subjects the Authority to certain covenants, including a covenant to maintain at least
   $25.0 million available for borrowing under the Bank Credit Facility. As of September 30, 2006, the Authority was in compliance with all covenant
                                                                                                                                                                   The Authority also has loaned funds to tenants related to The Shops at Mohegan Sun and certain other Mohegan Sun outlets. As of September 30, 2006 and
   requirements in the Line of Credit. As of September 30, 2006, the Authority had $25.0 million available for borrowing under the Line of Credit.
                                                                                                                                                                   2005, outstanding tenant loans were $2.6 million and $3.4 million, respectively. These loans mature in periods between three and ten years. These amounts,
   Accrued interest on the Line of Credit was $9,000 and $10,000 as of September 30, 2006 and 2005, respectively.
                                                                                                                                                                   net of allowance for doubtful accounts, have been included in other assets in the accompanying consolidated balance sheets.

   MORTGAGE PAYABLE
   In July 2004, the Authority’s wholly owned subsidiary, Mohegan Ventures-NW, formed a limited liability company, Salishan-Mohegan, with Salishan
                                                                                                                                                                   NOTE 10—RELATED PARTY TRANSACTIONS:
   Company, LLC (“Salishan Company”), an unrelated third party. Upon formation of Salishan-Mohegan, Salishan Company contributed, among other things,              On August 4, 2006, the Authority purchased a 5.0% membership interest in Salishan-Mohegan from Mohegan Ventures-NW and sold such 5.0% interest
   land with a mortgage payable of $2.6 million (refer to Note 18). The mortgage payable bears interest due on a monthly basis at an annual rate of 9.5%, with     to the Mohegan Tribe for approximately $351,000, reflecting the carrying value of such interest. Refer to Notes 15 and 18 for a further description of this
   the principal balance payable in full by Salishan-Mohegan on the maturity date. In March 2006, Salishan-Mohegan received an extension on the maturity           transaction and another transaction completed after September 30, 2006.
   date from March 28, 2006 to March 28, 2007. Accrued interest on the mortgage payable was $20,000 as of September 30, 2006 and 2005. Any and all
   amounts paid by Salishan-Mohegan, including interest payments, pursuant to this agreement are reimbursable by the Cowlitz Indian Tribe provided certain         The Tribe provides governmental and administrative services to the Authority in conjunction with the operation of Mohegan Sun. During the fiscal years
   events occur, as described in the development agreement between Salishan-Mohegan and the Cowlitz Indian Tribe.                                                  ended September 30, 2006, 2005 and 2004, the Authority incurred $18.9 million, $17.0 million and $15.4 million, respectively, of expenses for such services.

                                                                                                                                                                   The Authority leases the land on which Mohegan Sun is located from the Tribe pursuant to a long-term lease. The Authority is required to pay to the Tribe
   DERIVATIVE INSTRUMENTS                                                                                                                                          a nominal annual rental fee under the lease (see Note 12). The lease has an initial term of 25 years and is renewable for an additional 25-year term upon
   The Authority is considered an “end user” of derivative instruments and engages in derivative transactions from time to time for risk management purposes       expiration.
   only. There were no derivative instruments held by the Authority as of September 30, 2006.                                                                      The Tribe, through one of its limited liability companies, has entered into various land lease agreements with the Authority for access, parking and related
   Interest rate swap agreements hedging currently outstanding debt instruments of the Authority which qualified for hedge accounting in accordance with           purposes for Mohegan Sun. The Authority expensed $262,000 relating to these land lease agreements for each of the fiscal years ended September 30,
   SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” and were designated as fair value hedges were sold in prior fiscal years for      2006, 2005 and 2004.
   a net aggregate gain of $1.7 million. The $1.7 million net aggregate gain was deferred and added to the carrying value of the respective notes being hedged     The Authority purchases the majority of its utilities, including electricity, gas, water and sewer, from an instrumentality of the Tribe, the Mohegan Tribal
   and is being amortized and recorded to interest expense over the remaining term of the respective notes. For the fiscal years ended September 30, 2006,         Utility Authority. During the fiscal years ended September 30, 2006, 2005 and 2004, the Authority incurred costs of $19.7 million, $16.5 million and
   2005 and 2004, the Authority recorded amortization of $444,000, $711,000 and $(117,000) to reduce (increase) interest expense related to the sale of            $16.7 million, respectively, for such utilities.
   these derivative instruments. The Authority expects to record $456,000 to offset interest expense over the next twelve months. The Authority also
   recorded a reduction to interest expense of $2.6 million for the fiscal year ended September 30, 2004 related to interest settlements on the Authority’s        The Tribe provides services through its Development Department for projects related to Mohegan Sun. The Authority recorded $2.8 million, $10.6 million
   derivative instruments.                                                                                                                                         and $3.6 million of capital expenditures associated with the Tribe’s Development Department for the fiscal years ended September 30, 2006, 2005 and
                                                                                                                                                                   2004, respectively.
   LETTERS OF CREDIT                                                                                                                                               The Authority and Little People, LLC (an entity owned by the Tribe) had a lease agreement, whereby Little People, LLC leased retail space located in
   As of September 30, 2006, the Authority maintained four uncollateralized letters of credit to satisfy potential workers’ compensation liabilities, to satisfy   The Shops at Mohegan Sun from the Authority. In June 2006, the lease agreement was terminated, and the Authority purchased the furniture and fixtures,
   overdue pari-mutuel wagering tax liabilities of the Pocono Downs entities that may arise, to satisfy overdue amounts for purses due horsemen at Pocono          inventory and various outstanding accounts receivable pertaining to these retail operations from Little People, LLC for approximately $687,000. This retail
   Downs that may arise and to ensure payment of the $50.0 million license fee due upon issuance of a Pennsylvania Category One Slot Machine License               outlet is now owned and operated by the Authority.
   for Mohegan Sun at Pocono Downs (refer to Note 18). The letters of credit expire on August 31, 2007, January 25, 2007, November 11, 2006 and                    On September 25, 1995, the Tribe adopted the Mohegan Tribal Employment Rights Ordinance (the “TERO”), which sets forth hiring and contracting preference
   December 26, 2006, respectively, subject to renewals. As of September 30, 2006, no amounts were drawn on the letters of credit.                                 requirements for employers and entities conducting business on Tribal land or working on behalf of the Tribe. Pursuant to the TERO, an employer is required
                                                                                                                                                                   to give hiring, promotion, training, retention and other employment-related preferences to Native Americans who meet the minimum qualifications for the
                                                                                                                                                                   applicable employment position. However, this preference requirement does not apply to key employees, as such persons are defined in the TERO.

                                                                                                                                                                   Similarly, any entity awarding a contract to be performed on Tribal land or on behalf of the Tribe must give preference, first to certified Mohegan entities
                                                                                                                                                                   and second to other certified Indian entities. This contracting preference is conditioned upon the bid by the preferred certified entity being within 5% of
                                                                                                                                                                   the lowest bid by a non-certified entity (unless the preferred certified entity’s bid exceeds $100,000 of the lowest bid by a non-certified entity). The TERO
                                                                                                                                                                   establishes procedures and requirements for certifying Mohegan entities and other Indian entities. Certification is based largely on the level of ownership
                                                                                                                                                                   and control exercised by the members of the Tribe or other Indian tribes, as the case may be, over the entity bidding on a contract.

                                                                                                                                                                   As of September 30, 2006, approximately 125 employees of the Authority were members of the Tribe.




54 |                                                                                                                                                                                                                                                                                                                                    55 |
   NOTE 11—EMPLOYEE BENEFIT PLANS:                                                                                                                               RENT AND OTHER OPERATING EXPENSES
                                                                                                                                                                 The Authority is required to pay to the Tribe a nominal annual rental fee. For any period when the Tribe or another agency or instrumentality of the Tribe
   The Authority maintains a retirement savings plan for its employees under Section 401(k) and section 401(a) of the Internal Revenue Code (“the Mohegan
                                                                                                                                                                 is not the tenant under the lease, the rent will be 8% of the tenant’s gross revenues from the premises. The Authority is responsible for the payment of
   Retirement and 401(k) Plan”). The 401(k) portion of the plan allows employees of the Authority to defer up to the lesser of the maximum amount prescribed
                                                                                                                                                                 all costs of owning, operating, constructing, maintaining, repairing, replacing and insuring the leased property.
   by the Internal Revenue Code or 25% of their income on a pre-tax basis, through contributions to the 401(k) Plan. The Authority matches 100% of the
   eligible employees’ contributions up to a maximum of 3% of their individual earnings. Contributions to the retirement portion of the plan by the Authority
   are discretionary and are allocated to eligible employee accounts based on a rate of $0.30 per qualified hour worked. Employees become eligible for the       USE OF LEASED PROPERTY
   Mohegan Retirement and 401(k) plan after 90 days of employment and become fully vested after seven years of credited service. For the fiscal years            The Authority may use the leased property and improvements solely for the construction and operation of Mohegan Sun, unless prior approval is obtained
   ended September 30, 2006, 2005 and 2004, the Authority has contributed $9.5 million, $9.1 million and $8.5 million, net of forfeitures, to the Mohegan        from the Tribe for any proposed alternative use. Similarly, no construction or alteration of any building or improvement located on the leased property by
   Retirement and 401(k) Plan, respectively.                                                                                                                     the Authority may be made unless complete and final plans and specifications have been approved by the Tribe. Following foreclosure of any mortgage
   The Authority, together with the Tribe, maintains a Non-Qualified Deferred Compensation Plan (the “Deferred Compensation Plan”) for certain key employees.    on the Authority’s interest under the lease or any transfer of such interest to the holder of such mortgage in lieu of foreclosure, the leased property and
   This plan allows participants to defer up to 100% of their pre-tax income to the plan. For the fiscal years ended September 30, 2006, 2005 and 2004,          improvements may be used for any lawful purpose, subject only to applicable codes and governmental regulations; provided, however, that a non-Indian
   employee contributions, net of withdrawals and changes in fair value of investments, totaled $1.9 million, $2.7 million and $1.3 million, respectively.       holder of the leased property may in no event conduct gaming operations on the property.


                                                                                                                                                                 PERMITTED MORTGAGES AND RIGHTS OF PERMITTED MORTGAGES
   NOTE 12—COMMITMENTS AND CONTINGENCIES:
                                                                                                                                                                 The Authority may not mortgage, pledge or otherwise encumber its leasehold estate in the leased property except to a holder of a permitted mortgage. Under
                                                                                                                                                                 the lease, a “permitted mortgage” includes the leasehold mortgage securing the Authority’s obligations under the Bank Credit Facility granted by the Authority
   THE MOHEGAN COMPACT                                                                                                                                           that provides, among other things, that (1) the Tribe will have the right to notice of, and to cure, any default of the Authority, (2) the Tribe will have the right
   In May 1994, the Tribe and the State of Connecticut entered into a Memorandum of Understanding (“MOU”) which sets forth certain matters regarding             to prior notice of an intention by the holder to foreclose on the permitted mortgage and the right to purchase the mortgage in lieu of any foreclosure, and
   implementation of the Mohegan Compact. The MOU stipulates that a portion of the revenues earned on slot machines must be paid to the State of                 (3) the permitted mortgage is subject and subordinated to any and all access and utility easements granted by the Tribe under the lease.
   Connecticut (“Slot Win Contribution”). The Slot Win Contribution payments will not be required if the State of Connecticut legalizes any other gaming
                                                                                                                                                                 As provided in the lease, each holder of a permitted mortgage has the right to notice of any default of the Authority under the lease and the opportunity
   operations with slot machines or other commercial casino table games within Connecticut, except those consented to by the Tribe and the Mashantucket
                                                                                                                                                                 to cure such default within any applicable cure period.
   Pequot Tribe. For each 12-month period commencing July 1, 1995, the Slot Win Contribution shall be the lesser of (a) 30% of gross revenues from slot
   machines, or (b) the greater of (i) 25% of gross revenues from slot machines or (ii) $80.0 million.
                                                                                                                                                                 DEFAULT REMEDIES
   The Authority reflected expenses associated with the Slot Win Contribution totaling $226.3 million, $215.2 million and $208.2 million for the fiscal years
   ended September 30, 2006, 2005 and 2004, respectively. As of September 30, 2006 and 2005, outstanding Slot Win Contribution payments to the                   The Authority will be in default under the lease if, subject to the notice provisions, it fails to make lease payments or to comply with its covenants under
   State of Connecticut totaled $19.5 million and $18.7 million, respectively.                                                                                   the lease or if it pledges, encumbers or conveys its interest in the lease in violation of the terms of the lease. Following a default, the Tribe may, with approval
                                                                                                                                                                 from the Secretary of the Interior, terminate the lease unless a permitted mortgage remains outstanding with respect to the leased property. In that case,
                                                                                                                                                                 the Tribe may not (1) terminate the lease or the Authority’s right to possession of the leased property, (2) exercise any right of re-entry, (3) take possession
   PRIORITY DISTRIBUTION AGREEMENT                                                                                                                               of and/or relet the leased property or any portion thereof, or (4) enforce any other right or remedy which may materially and adversely affect the rights of
   On August 1, 2001, the Authority and the Tribe entered into an agreement (the “Priority Distribution Agreement”), which obligates the Authority to make       the holder of the permitted mortgage, unless the default triggering such rights was a monetary default which such holder failed to cure after notice.
   monthly payments to the Tribe to the extent of the Authority’s net cash flow, as defined in the Priority Distribution Agreement. The Priority Distribution
   Agreement, which has a perpetual term, limits the maximum aggregate payments by the Authority to the Tribe in each calendar year to $14.0 million, as
                                                                                                                                                                 ACLS OF NEW ENGLAND, INC.
   adjusted annually in accordance with the formula specified in the Priority Distribution Agreement to reflect the effects of inflation. However, payments
   pursuant to the Priority Distribution Agreement do not reduce the Authority’s obligations to make payments to reimburse the Tribe for governmental services   The Authority has a 10-year laundry services agreement with ACLS of New England, Inc. (“ACLS”). The Authority has an option to renew the agreement for
   provided by the Tribe or any payments under any other agreements with the Tribe. The monthly payments under the Priority Distribution Agreement are           one additional 10-year term after its expiration in October 2012. Under the laundry services agreement, the Authority will pay an agreed upon rate for laundry
   limited obligations of the Authority payable only to the extent of its net cash flow and are not secured by a lien or encumbrance on any assets or property   services, adjusted annually for the Consumer Price Index and unusual increases in energy costs. Additionally, the Authority has made a $500,000 loan to
   of the Authority. The Authority’s consolidated financial statements reflect payments associated with the Priority Distribution Agreement of $16.3 million,    ACLS to develop the laundry service facility. Pursuant to the terms of the loan, interest may accrue based on the exercise of the renewal options or other
   $15.8 million and $15.4 million for the fiscal years ended September 30, 2006, 2005 and 2004, respectively.                                                   certain circumstances. In the event that circumstances occur where interest will be accrued, interest shall accrue commencing from the date of the advance
                                                                                                                                                                 at an annual rate of five percent.

   AGREEMENT WITH THE TOWN OF MONTVILLE                                                                                                                          The Authority also entered into a co-investment and escrow agreement with the Mashantucket Pequot Tribal Nation (“MPTN”) and ACLS. Under the terms
                                                                                                                                                                 of those agreements, the Authority and MPTN may, under certain circumstances, become the joint owners of the laundry facility and be jointly and severally
   On June 16, 1994, the Tribe and the Town of Montville (the “Town”) entered into an agreement whereby the Tribe agreed to pay to the Town an annual
                                                                                                                                                                 obligated to repay a term loan which is secured by a mortgage on the laundry facility. The term of the agreements is for ten years and, if the Authority and
   payment of $500,000 to minimize the impact on the Town resulting from the decreased tax revenues on reservation land held in trust. The Tribe assigned
                                                                                                                                                                 MPTN become obligated to repay the term loan, the maximum potential future principal payments (undiscounted) the Authority and MPTN could be required
   its right and obligations in the agreement with the Town to the Authority.
                                                                                                                                                                 to make are approximately $4.3 million.

   LAND LEASE FROM THE TRIBE TO THE AUTHORITY
                                                                                                                                                                 MENOMINEE PROJECT
   The land upon which Mohegan Sun is situated is held in trust for the Tribe by the United States. The Tribe and the Authority have entered into a land lease
                                                                                                                                                                 In October 2004, the Authority entered into a management agreement with the Menominee Indian Tribe of Wisconsin (the “Menominee Tribe”) and the
   under which the Tribe leases to the Authority the property and all buildings, improvements and related facilities constructed or installed on the property.
                                                                                                                                                                 Menominee kenosha Gaming Authority. According to the management agreement, the Authority was granted the exclusive right and obligation to manage,
   The lease was approved by the Secretary of the Interior on September 29, 1995. Summarized below are several key provisions of this lease.
                                                                                                                                                                 operate and maintain a planned casino and destination resort to be located in kenosha, Wisconsin (the “Menominee Project”) for a period of seven years
                                                                                                                                                                 in consideration of a management fee of 13.4% of Net Revenues, as defined in the management agreement, which approximates net income from the
   TERM                                                                                                                                                          Menominee Project. The management agreement is subject to approval by the National Indian Gaming Commission (the “NIGC”).
   The term of the lease is 25 years with an option, exercisable by the Authority, to extend the term for one additional 25-year period. Upon the termination
   of the lease, the Authority will be required to surrender to the Tribe possession of the property and improvements, excluding any equipment, furniture,
   trade fixtures or other personal property.




56 |                                                                                                                                                                                                                                                                                                                         57 |
   ENVIRONMENTAL CONTINGENCIES                                                                                                                                          NOTE 13—RELINQUISHMENT AGREEMENT:
   Prior to acquiring the Pocono Downs entities, the Authority conducted an extensive environmental investigation of the Pocono Downs facilities. In the course
                                                                                                                                                                        In February 1998, the Authority and TCA entered into an agreement (the “Relinquishment Agreement”). Effective January 1, 2000 (the “Relinquishment
   of that work, the Authority identified several recognized environmental conditions at the Mohegan Sun at Pocono Downs facility for which corrective actions
                                                                                                                                                                        Date”), the Relinquishment Agreement superseded a then existing management agreement with TCA. The Relinquishment Agreement provides, among
   are necessary to bring the property into compliance with applicable laws and regulations. The Authority has implemented a comprehensive plan to mitigate
                                                                                                                                                                        other things, that the Authority will make certain payments to TCA out of, and determined as a percentage of, Revenues (as defined in the Relinquishment
   and resolve these conditions. As of September 30, 2006, the Authority has an estimated remaining obligation of $202,000.
                                                                                                                                                                        Agreement) generated by Mohegan Sun over a 15-year period commencing on the Relinquishment Date. The payments (“Senior Relinquishment Payments”
                                                                                                                                                                        and “Junior Relinquishment Payments”) have separate schedules and priority. Senior Relinquishment Payments commenced on April 25, 2000, twenty-five
   HORSEMEN’S AGREEMENT                                                                                                                                                 days following the end of the first three-month period after the Relinquishment Date and continue at the end of each three-month period thereafter until
   On January 25, 2005, Downs Racing, L.P. entered into an agreement with the Pennsylvania Harness Horsemen’s Association Inc. (the “PHHA”), which                      January 25, 2015. Junior Relinquishment Payments commenced on July 25, 2000, twenty-five days following the end of the first six-month period after
   represents owners, trainers and drivers at the Mohegan Sun at Pocono Downs harness racing facility. The agreement governs all live harness racing events             the Relinquishment Date and continue at the end of each six-month period thereafter until January 25, 2015. Each Senior Relinquishment Payment and
   and simulcasting and account wagering conducted at Mohegan Sun at Pocono Downs and the five OTW facilities through December 31, 2010.                                Junior Relinquishment Payment is an amount equal to 2.5% of the Revenues generated by Mohegan Sun over the immediately preceding three-month
                                                                                                                                                                        or six-month payment period, as the case may be. “Revenues” are defined in the Relinquishment Agreement as gross gaming revenues (other than
   Among other things, the agreement provides for the payment of 4.3% of all pari-mutuel wagering held at Mohegan Sun at Pocono Downs facilities to the                 Class II gaming revenue) and all other facility revenues (including, without limitation, hotel revenues, room service, food and beverage sales, ticket
   PHHA. This amount comprises the payment of $420,000 in certain operating costs and expenses for the PHHA, with the remainder allocated to purses                     revenues, fees or receipts from convention/events center and all rental or other receipts from lessees and concessionaires but not the gross receipts
   owed to the horsemen for each live racing event. Downs Racing, L.P. is also required to distribute to the PHHA 2.5% and 1.1% in fees earned on live races            of such lessees, licenses and concessionaires).
   conducted at Mohegan Sun at Pocono Downs and simulcast to wagering locations inside and outside Pennsylvania, respectively.
                                                                                                                                                                        In the event of any bankruptcy, liquidation or reorganization or similar proceeding relating to the Authority, the Relinquishment Agreement provides that
   Also, the Race Horse Development and Gaming Act of 2004 requires the holders of Category One Slot Machine Licenses to make payments to the PHHA                      each of the Senior and Junior Relinquishment Payments then due and owing are subordinated in right to payment of senior secured obligations, which
   of up to 12% of slot machine revenues after receipt of a slot machine license.                                                                                       include the Bank Credit Facility and capital lease obligations, and that the Junior Relinquishment Payments then due and owing are further subordinated
                                                                                                                                                                        to payment of all other senior obligations, including the Authority’s 2005 Senior Notes. The Relinquishment Agreement also provides that all relinquishment
                                                                                                                                                                        payments are subordinated in right of payment to the minimum priority distribution payments, which are monthly payments required to be made by the
   ERIE OTW SETTLEMENT AGREEMENT
                                                                                                                                                                        Authority to the Tribe, to the extent then due. The Authority, in accordance with SFAS 5, has recorded a relinquishment liability of the estimated present
   Prior to the Authority’s acquisition of the Pocono Downs entities, Penn National Gaming Inc., the former owner of the Pocono Downs entities, entered into            value of its obligations under the Relinquishment Agreement (see Note 2).
   an agreement to sell all of the assets associated with the OTW facility located in Erie, Pennsylvania to MTR Gaming Group, Inc. (“MTR”) and Presque Isle
   Downs Inc. (“PID” and collectively with MTR, “Presque Isle”) for $7.0 million. Penn National Gaming Inc. assigned its rights under this agreement to the             A relinquishment liability of $549.1 million was established at September 30, 1998 based on the present value of the estimated future Mohegan Sun
   Authority’s subsidiary, Downs Racing, L.P., upon the Authority’s acquisition of the Pocono Downs entities. Accordingly, Presque Isle will be required to             revenues utilizing the Authority’s risk-free investment rate. At September 30, 2006, the carrying amount of the relinquishment liability was $548.0
   make the $7.0 million payment to Downs Racing, L.P. upon the occurrence of either of the following two conditions: (1) the commencement by any of the                million as compared to $552.5 million at September 30, 2005. The increase during the fiscal year ended September 30, 2006 is due to a $39.4 million
   Presque Isle entities of pari-mutuel wagering in Erie, Pennsylvania or (2) the receipt by any Presque Isle entity of revenue from slot machine operations in         reassessment adjustment of the relinquishment liability and $30.7 million for the accretion of discount to the relinquishment liability, offset by $74.6
   Erie, Pennsylvania. If the receipt of slot machine revenues triggers the $7.0 million payment, then MTR has the right to delay such $7.0 million payment until       million in relinquishment payments. Of the $74.6 million in relinquishment payments, $44.7 million represents payment of principal and $29.9 million
   the earlier to occur of (i) the first anniversary of the first receipt of revenue from slot machine operations or (ii) the commencement by any of the Presque        represents payment of the accretion of discount to the relinquishment liability. During the fiscal year ended September 30, 2005, the Authority paid
   Isle entities of pari-mutuel wagering in Erie, Pennsylvania. After receipt of the $7.0 million payment, Downs Racing, L.P. will be required to discontinue its       $70.6 million in relinquishment payments, consisting of $42.5 million in principal amounts and $28.1 million for the payment of the accretion of discount
   OTW operations in Erie, Pennsylvania and convey the Erie OTW facility to Presque Isle as soon as commercially reasonable. The PGCB granted a conditional             to the relinquishment liability. During the fiscal year ended September 30, 2004, the Authority paid $67.4 million in relinquishment payments, consisting
   license to PID in October 2006 to operate slot machines at Presque Isle Downs in Erie County, Pennsylvania, which is scheduled to open in February 2007.             of $36.5 million in principal amounts and $30.9 million for the payment of the accretion of discount to the relinquishment liability. The accretion of discount
                                                                                                                                                                        to the relinquishment liability reflects the accretion of the discount to the present value of the relinquishment liability for the impact of the time value of
                                                                                                                                                                        money. At September 30, 2006 and September 30, 2005, relinquishment payments earned but unpaid were $20.4 million and $19.2 million, respectively.
   PENNSYLVANIA PROPERTY TAX LITIGATION
   As the successor owner of Downs Racing, L.P., the Authority is involved in a dispute with the Wilkes-Barre Area School District, which had filed an appeal in        The relinquishment liability reassessment adjustment of $39.4 million, $123.6 million and $3.9 million for the fiscal years ended September 30, 2006,
   November 2001 against Downs Racing, L.P.’s predecessor company, Pocono Downs, Inc., and the Luzerne County Board of Assessment Appeals relating to                   2005 and 2004, respectively, resulted from revised revenue projections as of the end of the current year compared to estimates of revenue projections
   certain property tax assessments. The school district has challenged the certified assessment for the tax year 2002, and is seeking an unspecified increase          as of the end of the prior year on the determination of the relinquishment liability.
   to the assessed value of that property for 2002 and subsequent tax years, and now including additional assessments for tax year 2007. A trial was held on            In fiscal year 2006, the Authority reviewed current revenue forecasts, including estimated timing and extent of future competition, and significantly
   the case in September 2006 and a mediation conference took place in November 2006, with no judgment or settlement on the matter. Written proposed                    increased revenue projections for the period in which the Relinquishment Agreement applies, primarily due to the approval by the Management Board of
   findings of fact and conclusions of law are required to be submitted to the Luzerne County Court by January 16, 2007, after which the Court will issue a             the Authority in October 2006 of an expansion of Mohegan Sun referred to as “Project Horizon”, and management’s estimates of the impact this expansion
   ruling. At this stage of the litigation, no single amount within the range of any possible loss can be reasonably determined. The Authority cannot provide           will have on future competition assumptions. The Authority concluded that projected revenues from Mohegan Sun subject to the relinquishment agreement
   any assurance as to the ultimate success of its defense of the school board’s complaint. If the school board’s complaint was resolved unfavorably to the             over the remaining period of the agreement, which expires on December 31, 2014, would increase by approximately $878.2 million, thereby increasing the
   Authority, the Authority’s financial position, results of operations and cash flows could be adversely affected.                                                     related relinquishment liability, causing the Authority to record a non-cash relinquishment liability charge of $39.4 million for the quarter ended
                                                                                                                                                                        September 30, 2006.
   OTHER LITIGATION
                                                                                                                                                                        In fiscal year 2005, the Authority reviewed current revenue forecasts, including estimated timing and extent of future competition, and significantly
   The Authority is a defendant in certain litigation incurred in the normal course of business. In the opinion of management, based on the advice of counsel,          increased revenue projections for the period in which the Relinquishment Agreement applies, primarily due to material changes in the Connecticut gaming
   the aggregate liability, if any, arising from such litigation will not have a material adverse effect on the Authority’s financial position, results of operations   market subsequent to September 30, 2005. On May 13, 2005, the United States Interior Board of Indian Appeals overturned the federal recognition of the
   or cash flows.                                                                                                                                                       Historic Eastern Pequot Tribe and the Schaghticoke Tribe of kent, Connecticut. These decisions were remanded to the United States Secretary of the Interior
                                                                                                                                                                        for reconsideration. The Authority concluded this ruling was not substantive enough to warrant a reassessment of the relinquishment liability at that time.
                                                                                                                                                                        However, on October 12, 2005, the Bureau of Indian Affairs upon reconsideration denied the federal recognition of these two Indian tribes which had
                                                                                                                                                                        expressed interest in building casinos in the close proximity of Mohegan Sun in Connecticut. As a result of this decision and other developments involving
                                                                                                                                                                        the revaluation of the impact to future Mohegan Sun revenues from potential competition in the Northeast gaming market, the Authority concluded events
                                                                                                                                                                        had occurred which are projected to increase revenues at Mohegan Sun over the remaining relinquishment period by approximately $3.2 billion and,
                                                                                                                                                                        therefore, substantially increase the related relinquishment liability, causing the Authority to account for a non-cash relinquishment liability charge
                                                                                                                                                                        of $123.6 million for the quarter ended September 30, 2005.

                                                                                                                                                                        In fiscal year 2004, the Authority reviewed current revenue forecasts, including the estimated timing and extent of future competition, and increased
                                                                                                                                                                        revenue projections for the near future but reduced overall revenue projections for the period in which the Relinquishment Agreement applies.




58 |                                                                                                                                                                                                                                                                                                                                59 |
   NOTE 14—INVESTMENT IN WNBA FRANCHISE:                                                                                                                              On August 4, 2006, the Authority purchased a 5.0% membership interest in Salishan-Mohegan from Mohegan Ventures-NW and sold such 5.0% interest
                                                                                                                                                                      to the Mohegan Tribe for approximately $351,000, reflecting the carrying value of such interest. Mohegan Ventures-NW now holds a 49.15% interest in
   On January 27, 2003, the Authority created a wholly owned subsidiary, MBC, for the purpose of owning and operating a professional basketball team in               Salishan-Mohegan. The Authority designated Mohegan Ventures-NW as a restricted subsidiary under the Bank Credit Facility and certain of the indentures
   the WNBA. On January 28, 2003, the Authority and MBC entered into the Membership Agreement with WNBA, LLC. The Membership Agreement set forth                      relating to its senior and senior subordinated notes. On August 4, 2006, Mohegan Ventures-NW executed appropriate agreements to guarantee the
   the terms and conditions pursuant to which MBC acquired a membership in the WNBA and the right to own and operate a professional basketball team in                Authority’s debt obligations under the Bank Credit Facility, the 2005 Senior Notes, the 2002 Senior Subordinated Notes, the 2003 Senior Subordinated
   the WNBA. The Authority guaranteed the obligations of MBC under the Membership Agreement. MBC is a full and unconditional guarantor of the Authority’s             Notes, the 2004 Senior Subordinated Notes and the 2005 Senior Subordinated Notes. While Salishan-Mohegan continues to be included in the consolidated
   outstanding indebtedness under the Bank Credit Facility and senior and senior subordinated notes. Refer to Note 17 for condensed consolidating financial           financial statements of the Authority under generally accepted accounting principles, Salishan-Mohegan is no longer considered to be a subsidiary of the
   information of the Authority, its guarantor subsidiaries and its non-guarantor subsidiaries.                                                                       Authority under appropriate provisions of the Bank Credit Facility and the indentures to the Authority’s senior and senior subordinated notes.

   As part of the acquisition, management, with the assistance of an independent valuation firm, estimated the fair value of the player roster at approximately
   $4.8 million, and the remaining $5.5 million was recorded as franchise value. The player roster value is being amortized over seven years, and the franchise       NOTE 16—SEGMENT REPORTING:
   value is being amortized over thirty years. Since the date of acquisition to September 30, 2006, write-offs of player contracts included on the original player
                                                                                                                                                                      As of September 30, 2006, the Authority owns and operates the Mohegan Sun property in Connecticut and, through the Pocono Downs entities, operates a
   roster totaled $2.7 million. As of September 30, 2006 and 2005, accumulated amortization on the player roster value was $1.1 million. As of September 30,
                                                                                                                                                                      harness racetrack at Pocono Downs and five OTW facilities in Pennsylvania. All of the Authority’s revenues are derived from these operations. The Authority’s
   2006 and 2005, accumulated amortization on the franchise value was $671,000 and $488,000, respectively. For the fiscal years ended September 30,                   executive officers review and assess the performance of the operating results and determine the proper allocation of resources to Mohegan Sun and the
   2006, 2005 and 2004, amortization expense associated with these intangible assets totaled $918,000, $1.1 million and $1.8 million, respectively, including         Pocono Downs entities on a separate basis. The Authority, therefore, believes that it has two operating segments, one comprised solely of Mohegan Sun and
   charges totaling $405,000, $458,000 and $1.0 million related to net write-offs of certain player contracts included on the original player roster, in the fiscal   another, referred to as “Pocono Downs” herein, comprised of the operations of the Pocono Downs entities. The two operating segments are also separate
   years ended September 30, 2006, 2005 and 2004, respectively. The Authority expects to incur $484,000 in amortization expense for each of the next three            reportable segments due to the differing nature of their operations. The following tables provide financial information on each segment (in thousands):
   years and $282,000 and $183,000 in the fourth and fifth years, respectively, related to these assets.
                                                                                                                                                                                                                                                                                                        For the Fiscal Year Ended September 30,
   In connection with MBC’s purchase of a membership in the WNBA, MBC has an approximately 3.6% ownership position in WNBA, LLC, which is being                                                                                                                                          2006             2005 (1)                        2004

   accounted for under the cost method. Under the Limited Liability Company Agreement of WNBA, LLC, if at any time WNBA, LLC’s board of governors                                     Net revenues:
   determines that additional funds are necessary or desirable for the WNBA, LLC’s or any league entity’s general business, the board of governors may                                Mohegan Sun                                                                             $    1,392,958     $    1,305,686               $ 1,256,926
                                                                                                                                                                                      Pocono Downs                                                                                    33,456              25,919                       —
   require additional cash capital contributions. In that circumstance, each member of the league shall be obligated to contribute to WNBA, LLC an amount
                                                                                                                                                                                      Total                                                                                         1,426,414          1,331,605                1,256,926
   of cash equal to that member’s proportionate share of ownership. Pursuant to the WNBA Note, the principal payment due on the WNBA Note after any
   such contribution made by MBC will be reduced by the contribution amount. Through September 30, 2006, there were no cash capital contributions                                     Income (loss) from operations:
   required by WNBA, LLC.                                                                                                                                                             Mohegan Sun                                                                                     267,415            150,914                     251,455
                                                                                                                                                                                      Pocono Downs                                                                                     (7,400)                (67)                        —
                                                                                                                                                                                      Corporate                                                                                      (10,636)             (11,483)                    (4,838)
   NOTE 15—MOHEGAN VENTURES-NORTHWEST, LLC:                                                                                                                                           Total                                                                                          249,379            139,364                      246,617

   On July 23, 2004, the Authority formed Mohegan Ventures-NW as a wholly owned subsidiary of the Authority and one of three members in Salishan-Mohegan,                             Accretion of discount to the relinquishment liability                                          (30,707)           (27,466)                    (29,939)
   formed with Salishan Company, an unrelated third party, to participate in the development and management of a casino to be located in Clark County, Washington.                    Interest Income                                                                                  2,245                673                         232
   The proposed casino (the “Cowlitz Project”) will be owned by the Cowlitz Indian Tribe. The Mohegan Tribe is also a member of Salishan-Mohegan. As of                               Interest expense, net of capitalized interest                                                  (90,928)            (88,011)                   (78,970)
                                                                                                                                                                                      Loss on early extinguishment of debt                                                                —                (280)                     (34,138)
   September 30, 2006, Mohegan Ventures-NW holds a 49.15% membership interest, the Mohegan Tribe holds a 5.00% membership interest and Salishan
                                                                                                                                                                                      Other income (expense), net                                                                     24,508              (1,127)                      (933)
   Company holds a 45.85% membership interest in Salishan-Mohegan (refer to Note 18). Mohegan Ventures-NW and the Mohegan Tribe each hold one of
   four seats on the Board of Managers of Salishan-Mohegan. Salishan-Mohegan was designated as an unrestricted subsidiary of the Authority and therefore                              Income before minority interest                                                                 154,497            23,153                      102,869
   is not required to be a guarantor of the Authority’s debt obligations.                                                                                                             Minority interest                                                                                   420               514                           18
                                                                                                                                                                                      Net income                                                                              $        154,917   $       23,667               $      102,887
   Upon formation of Salishan-Mohegan, Salishan Company contributed land purchase options related to property in Clark County, Washington to be assigned
   to the Cowlitz Indian Tribe for purposes of the Cowlitz Project, upon (1) receipt of necessary financing for the development of the proposed casino and
   (2) the underlying property being taken into trust by the United States Department of the Interior. On January 3, 2006, in accordance with the option                                                                                                                                                For the Fiscal Year Ended September 30,

   agreements, the Authority exercised certain of these options and purchased two respective parcels for $7.5 million, including closing costs. On April 28,                                                                                                                             2006             2005 (1)                        2004
                                                                                                                                                                                      Capital expenditures:
   2006, the Authority closed on the remaining option and purchased the respective parcel for $3.2 million, including closing costs and net of total purchase
                                                                                                                                                                                      Mohegan Sun                                                                             $        44,375    $       45,367               $      30,680
   option payments made in prior periods of $1.6 million. The option agreements also required a cumulative payment of $2.4 million for fees related to extending                      Pocono Downs                                                                                     44,448             5,148                           —
   the options to purchase all three parcels, which were due at the closing of the last parcel.                                                                                       Corporate                                                                                        13,097               476                           —
                                                                                                                                                                                      Total                                                                                   $       101,920    $       50,991               $      30,680
   Pursuant to the development agreement described below, the notes receivable contributed to Salishan-Mohegan and amounts paid by Salishan-Mohegan
   subsequent to formation related to the development of the Cowlitz Project are reimbursable to Salishan-Mohegan by the Cowlitz Indian Tribe, subject to
   appropriate approvals defined in the development agreement. Reimbursements are contingent and payable upon: (1) the receipt of necessary financing                                                                                                                             Sept 30,2006       Sept 30,2005
   for the development of the proposed casino; and (2) the assignable property being taken into trust by the United States Department of the Interior. Notes                          Total assets:
   receivable bear interest at the Wall Street Journal Prime Rate plus 2%, compounded annually. As of September 30, 2006 and 2005, receivables from the                               Mohegan Sun                                                                             $    1,505,258     $    1,525,300
   Cowlitz Indian Tribe totaled $13.4 million and $11.2 million, respectively, including accrued interest, offset by a $4.0 million and $2.2 million reserve in the                   Pocono Downs (including goodwill of $39,459)                                                   333,820             289,713
   consolidated balance sheet, respectively.                                                                                                                                          Corporate                                                                                        75,279             41,855
                                                                                                                                                                                      Total                                                                                   $     1,914,357    $    1,856,868
   On September 21, 2004, Salishan-Mohegan entered into development and management agreements with the Cowlitz Indian Tribe regarding the Cowlitz
   Project. Under the terms of the development agreement, Salishan-Mohegan will carry out all activities that are necessary to develop the Cowlitz Project,           (1) Period from date of inception (January 25, 2005) to September 30, 2005 for Pocono Downs entities.
   including advising the Cowlitz Indian Tribe with its plan to place land into trust by the United States Department of the Interior, assisting the Cowlitz Indian
   Tribe in the negotiation of a compact with the State of Washington, assisting in the arrangement of financing for the Cowlitz Project and administering
   and overseeing the planning, design, development, and construction of the Cowlitz Project. The development agreement provides for development fees
   of 3% of total Project Costs, as defined in the development agreement, which are payable to Mohegan Ventures-NW and the Mohegan Tribe through
   Salishan-Mohegan pursuant to the Operating Agreement. The management agreement is for a period of seven years, during which Salishan-Mohegan
   will manage, operate, and maintain the planned casino. The management agreement provides for a management fee of 24% of Net Revenues, as defined
   in the management agreement, which approximates net income from the Cowlitz Project. Pursuant to the Operating Agreement, management fees will be
   allocated to the members of Salishan-Mohegan based on their respective membership percentages. Development of the Cowlitz Project is subject to certain
   governmental and regulatory approvals, including, but not limited to, negotiating a gaming compact with the State of Washington and the accepting of land
   into trust on behalf of the Cowlitz Indian Tribe. The management agreement is subject to approval by the NIGC.

60 |                                                                                                                                                                                                                                                                                                                               61 |
   NOTE 17—CONDENSED CONSOLIDATING FINANCIAL STATEMENT INFORMATION:                                                                                                                     CONDENSED CONSOLIDATING STATEMENTS OF INCOME
                                                                                                                                                                                                                                                                                                                                                              For the Fiscal Year Ended September 30, 2006
   As of September 30, 2006, the Authority’s outstanding public debt, comprised of substantially all of its senior and senior subordinated notes, is fully
                                                                                                                                                                                                                                                                                                                                                                     Consolidating/
   and unconditionally guaranteed by at least one or all of the following subsidiaries of the Authority: MBC, Mohegan Ventures-NW, MCV-PA and the                                                                                                                                                                              Guarantor     Non-Guarantor              Eliminating          Consolidated
   Pocono Downs entities (refer to Notes 8, 15 and 18). Separate financial statements and other disclosures concerning MBC, Mohegan Ventures-NW,                                                                                                                                                          Authority          Subsidiaries       Subsidiary             Adjustments                   Total

   MCV-PA and the Pocono Downs entities are not presented below because the Authority believes that they are not material to investors. Condensed
   consolidating financial statement information for the Authority, MBC, Mohegan Ventures-NW, MCV-PA, the Pocono Downs entities and the                                                                 Net revenues                                                                                $   1,389,629     $          37,987      $         —         $         (1,202)       $    1,426,414
   non-guarantor subsidiary, Salishan-Mohegan, as of September 30, 2006 and 2005 and for the fiscal years ended September 30, 2006, 2005                                                                Operating costs and expenses:
   and 2004 is as follows (in thousands):                                                                                                                                                                   Gaming & other operations                                                                    804,522                28,849                  —                  (1,202)              832,169
                                                                                                                                                                                                            Advertising, general and administrative                                                      199,779                10,597               1,771                     —                 212,147
   CONDENSED CONSOLIDATING BALANCE SHEETS                                                                                                                                                                   Pre-opening costs and expenses                                                                      —                 5,130                 —                      —                   5,130
                                                                                                                                                                                                            Depreciation and amortization                                                                  84,473                3,709                  —                      —                  88,182
                                                                                                                                                            As of September 30, 2006
                                                                                                                                                                                                            Relinquishment liability reassessment                                                          39,407                    —                  —                      —                 39,407
                                                                                                                                               Consolidating/
                                                                                                          Guarantor        Non-Guarantor          Eliminating           Consolidated                              Total operating costs and expenses                                                     1,128,181              48,285               1,771                 (1,202)            1,177,035
                                                                                        Authority       Subsidiaries          Subsidiary         Adjustments                    Total                   Income (loss) from operations                                                                    261,448               (10,298)             (1,771)                    —               249,379
              ASSETS                                                                                                                                                                                    Accretion of discount to the relinquishment liability                                            (30,707)                    —                  —                      —               (30,707)
              Property and equipment, net                                        $    1,243,150     $     76,722       $         19,951    $            —         $     1,339,823                       Interest expense, net of capitalized interest                                                     (64,981)             (25,947)            (1,203)                  1,203              (90,928)
              Intercompany receivables                                                   118,415           19,148                    —            (137,563)                     —                       Loss on interests in subsidiaries                                                                (35,892)                 (484)                 —                 36,376                      —
              Investment in subsidiaries                                                233,174            3,358                     —           (236,532)                      —                       Other income, net                                                                                  24,629                 1,257            2,070                   (1,203)               26,753
              Other intangible assets, net                                              119,826          219,823                     —                  —                 339,649                       Income (loss) before minority interest                                                            154,497              (35,472)             (904)                 36,376                154,497
              Other assets, net                                                          181,415          44,079                  9,391                 —                 234,885                       Minority interest                                                                                       —                    —                  —                     420                   420
                  Total assets                                                   $   1,895,980      $    363,130       $        29,342     $     (374,095)        $      1,914,357                      Net income (loss)                                                                           $     154,497     $        (35,472)      $      (904)        $        36,796         $       154,917

              LIABILITIES AND CAPITAL
              Total current liabilities                                          $       261,135 $         7,858       $         3,355     $             —        $       272,348
              Long-term debt, net of current portion                                  1,221,804            4,000                     —                   —              1,225,804                                                                                                                                                                             For the Fiscal Year Ended September 30, 2005
              Relinquishment liability, net of current portion                          451,038                —                     —                   —                 451,038                                                                                                                                                                                   Consolidating/
              Intercompany payables                                                           —           118,415                19,148           (137,563)                      —                                                                                                                                             Guarantor     Non-Guarantor              Eliminating          Consolidated
              Other long-term liabilities                                                   542                —                     —                   —                     542                                                                                                                        Authority       Subsidiaries (1)      Subsidiary             Adjustments                   Total

                  Total liabilities                                                   1,934,519          130,273                22,503            (137,563)             1,949,732
              Minority interest in subsidiary                                                 —                —                     —               3,480                   3,480                      Net revenues                                                                                $   1,302,039     $          30,816      $         —         $         (1,250)      $     1,331,605
              Total capital                                                             (38,539)         232,857                 6,839           (240,012)                (38,855)                      Operating costs and expenses:
                  Total liabilities and capital                                  $   1,895,980 $         363,130       $        29,342     $     (374,095)        $      1,914,357                          Gaming & other operations                                                                    760,504                 22,158                 —                  (1,250)               781,412
                                                                                                                                                                                                            Advertising, general and administrative                                                       189,416                  7,301            1,553                       —               198,270
                                                                                                                                                                                                            Pre-opening costs and expenses                                                                      —                  1,257                —                       —                  1,257
                                                                                                                                                            As of September 30, 2005
                                                                                                                                                                                                            Depreciation and amortization                                                                   84,731                2,947                 —                       —                87,678
                                                                                                                                               Consolidating/
                                                                                                          Guarantor        Non-Guarantor          Eliminating           Consolidated                        Relinquishment liability reassessment                                                         123,624                     —                 —                       —               123,624
                                                                                        Authority       Subsidiaries          Subsidiary         Adjustments                    Total                             Total operating costs and expenses                                                    1,158,275                33,663             1,553                  (1,250)             1,192,241
              ASSETS                                                                                                                                                                                    Income (loss) from operations                                                                     143,764                (2,847)           (1,553)                      —               139,364
              Property and equipment, net                                        $   1,283,885      $     34,956       $         3,850     $           —          $      1,322,691                      Accretion of discount to the relinquishment liability                                            (27,466)                     —                 —                       —               (27,466)
              Intercompany receivables                                                  26,032             3,607                     —            (29,639)                      —                       Interest expense, net of capitalized interest                                                    (73,202)               (14,809)             (218)                     218               (88,011)
              Investment in subsidiaries                                               266,033             3,023                     —           (269,056)                      —                       Loss on interests in subsidiaries                                                                 (18,024)                 (607)                —                  18,631                     —
              Other intangible assets, net                                              119,826           220,741                    —                 —                  340,567                       Other income (expense), net                                                                         (1,405)                  239              650                    (218)                 (734)
              Other assets, net                                                        140,629             42,131               10,850                 —                   193,610                      Income (loss) before minority interest                                                             23,667               (18,024)            (1,121)                18,631                 23,153
                  Total assets                                                   $   1,836,405      $    304,458       $        14,700     $     (298,695)        $     1,856,868                       Minority interest                                                                                       —                     —                 —                      514                   514
                                                                                                                                                                                                        Net income (loss)                                                                           $      23,667     $         (18,024)     $      (1,121)      $         19,145       $        23,667
              LIABILITIES AND CAPITAL
              Total current liabilities                                          $       257,199    $        7,710     $         5,509     $            —         $         270,418     (1) Period from date of inception (July 25, 2005) to September 2005 for Pocono Downs entities and MCV-PA.
              Long-term debt, net of current portion                                   1,221,348            5,000                    —                  —               1,226,348
              Relinquishment liability, net of current portion                          462,078                 —                    —                  —                  462,078
              Intercompany payables                                                            —          26,032                 3,607            (29,639)                       —
              Other long-term liabilities                                                    336                —                    —                  —                      336
                  Total liabilities                                                   1,940,961            38,742                 9,116           (29,639)               1,959,180
              Minority interest in subsidiary                                                  —                —                    —              2,560                    2,560
              Total capital                                                            (104,556)          265,716                5,584            (271,616)               (104,872)
                  Total liabilities and capital                                  $   1,836,405      $    304,458       $        14,700     $     (298,695)        $     1,856,868




62 |                                                                                                                                                                                                                                                                                                                                                                                              63 |
   CONDENSED CONSOLIDATING STATEMENTS OF INCOME ( continued )                                                                                                                                                                      CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS ( continued )
                                                                                                                                                                                    For the Fiscal Year Ended September 30, 2004

                                                                                                                                                                                          Consolidating/                                                                                                                                                                                                            For the Fiscal Year Ended September 30, 2005
                                                                                                                                                Guarantor         Non-Guarantor              Eliminating           Consolidated                                                                                                                                                                                           Consolidating/
                                                                                                                           Authority       Subsidiaries (1)        Subsidiary (1)           Adjustments                    Total                                                                                                                                                Guarantor         Non-Guarantor              Eliminating           Consolidated
                                                                                                                                                                                                                                                                                                                                                           Authority       Subsidiaries (1)          Subsidiary             Adjustments                    Total

                  Net revenues                                                                                 $      1,254,018        $          3,479       $               —      $             (571)     $      1,256,926
                  Operating costs and expenses:                                                                                                                                                                                                   Net cash flows provided by (used in) operating activities                                     $      247,340         $            (264)     $               (1)    $               —       $        247,075
                      Gaming & other operations                                                                        729,495                     3,148                     —                    (571)               732,072
                      Advertising, general and administrative                                                          178,699                     1,950                     96                     —                 180,745                     Cash flows used in investing activities:
                      Depreciation and amortization                                                                       91,701                   1,894                     —                      —                  93,595                     Purchases of property and equipment                                                                  (45,737)                  (3,482)                    —                      —                  (49,219)
                                                                                                                                                                                                                                                  Acquisition of Pocono Downs, net of cash acquired of $875                                                  —                  (280,114)                   —                      —                 (280,114)
                      Relinquishment liability reassessment                                                               3,897                       —                      —                      —                    3,897
                                                                                                                                                                                                                                                  Other cash flows used in investing activities                                                       (291,509)                   (5,163)               (4,892)               295,719                  (5,845)
                            Total operating costs and expenses                                                       1,003,792                    6,992                      96                   (571)             1,010,309
                                                                                                                                                                                                                                                  Net cash flows used in investing activities                                                         (337,246)                (288,759)                (4,892)               295,719                (335,178)
                  Income (loss) from operations                                                                        250,226                    (3,513)                   (96)                    —                  246,617
                  Accretion of discount to the relinquishment liability                                                (29,939)                       —                      —                      —                 (29,939)
                                                                                                                                                                                                                                                  Cash flows provided by (used in) financing activities:
                  Interest expense                                                                                     (78,765)                     (205)                    (2)                     2                (78,970)
                                                                                                                                                                                                                                                  Bank Credit Facility borrowings - revolving loan                                                      750,000                      —                      —                      —                  750,000
                  Loss on early extinguishment of debt                                                                  (34,138)                      —                      —                      —                  (34,138)
                                                                                                                                                                                                                                                  Bank Credit Facility repayments - revolving loan                                                    (838,000)                      —                      —                      —                (838,000)
                  Loss on interests in subsidiaries                                                                      (3,736)                     (22)                    —                   3,758                      —
                                                                                                                                                                                                                                                  Bank Credit Facility borrowings - term loan                                                              58,333                    —                      —                      —                    58,333
                  Other income (expense), net                                                                               (761)                      4                     58                     (2)                   (701)
                                                                                                                                                                                                                                                  Bank Credit Facility repayments - term loan                                                          (150,000)                     —                      —                      —                 (150,000)
                  Income (loss) before minority interest                                                               102,887                   (3,736)                    (40)                 3,758                102,869
                                                                                                                                                                                                                                                  Line of credit borrowings                                                                             474,900                      —                      —                      —                  474,900
                  Minority interest                                                                                           —                       —                      —                      18                      18
                                                                                                                                                                                                                                                  Line of credit repayments                                                                           (479,985)                      —                      —                      —                (479,985)
                  Net income (loss)                                                                            $       102,887 $                 (3,736)      $             (40)     $           3,776       $        102,887
                                                                                                                                                                                                                                                  Proceeds from the issuance of long-term debt                                                         400,000                       —                      —                      —                 400,000
                                                                                                                                                                                                                                                  Principal portion of relinquishment liability payments                                                 (42,540)                    —                      —                      —                   (42,540)
   (1) Period from date of inception (July 23, 2004) to September 30, 2004 for Mohegan Ventures-NW and Salishan-Mohegan.
                                                                                                                                                                                                                                                  Distributions to Tribe                                                                                (67,500)                     —                      —                      —                  (67,500)
                                                                                                                                                                                                                                                  Other cash flows provided by (used in) financing activities                                              (4,204)              289,556                  4,893               (295,719)                  (5,474)
                                                                                                                                                                                                                                                  Net cash flows provided by financing activities                                                         101,004               289,556                  4,893               (295,719)                  99,734

   CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS                                                                                                                                                                                               Net increase in cash and cash equivalents                                                                 11,098                    533                     —                      —                   11,631

                                                                                                                                                                                    For the Fiscal Year Ended September 30, 2006                  Cash and cash equivalents at beginning of year                                                           60,406                     388                     —                      —                 60,794
                                                                                                                                                                                          Consolidating/
                                                                                                                                                Guarantor         Non-Guarantor              Eliminating           Consolidated                   Cash and cash equivalents at end of year                                                      $           71,504     $              921     $               —      $               —       $         72,425
                                                                                                                           Authority          Subsidiaries           Subsidiary             Adjustments                    Total

                                                                                                                                                                                                                                   (1) Period from date of inception (January 25, 2005) to September 30, 2005 for Pocono Downs entities and MCV-PA.
                  Net cash flows provided by (used in) operating activities                                    $       259,832         $          (8,959)     $                4     $               —       $        250,877

                  Cash flows used in investing activities:                                                                                                                                                                                                                                                                                                                                                          For the Fiscal Year Ended September 30, 2004
                  Purchases of property and equipment                                                                  (43,095)                 (42,326)               (13,082)                                      (98,503)                                                                                                                                                                                             Consolidating/
                  Other cash flows used in investing activities                                                        (64,846)                  (15,157)               (3,405)                 81,130                 (2,278)                                                                                                                                                  Guarantor         Non-Guarantor              Eliminating           Consolidated
                                                                                                                                                                                                                                                                                                                                                           Authority       Subsidiaries (1)        Subsidiary (1)           Adjustments                    Total
                  Net cash flows used in investing activities                                                          (107,941)                (57,483)               (16,487)                 81,130               (100,781)

                  Cash flows provided by (used in) financing activities:                                                                                                                                                                          Net cash flows provided by (used in) operating activities                                     $          216,672     $          (1,868)     $                 1     $              —        $       214,805
                  Bank Credit Facility borrowings - revolving loan                                                    233,000                         —                     —                       —                233,000
                  Bank Credit Facility repayments - revolving loan                                                   (233,000)                        —                     —                       —               (233,000)                     Cash flows used in investing activities:
                  Line of credit borrowings                                                                           444,226                         —                     —                       —                444,226                      Purchases of property and equipment                                                                   (31,874)                     (38)                    —                      —                  (31,912)
                  Line of credit repayments                                                                          (444,226)                        —                     —                       —               (444,226)                     Other cash flows used in investing activities                                                          (5,512)                  (2,692)                  (176)                 8,104                   (276)
                  Principal portion of relinquishment liability payments                                               (44,731)                       —                     —                       —                 (44,731)                    Net cash flows used in investing activities                                                          (37,386)                   (2,730)                  (176)                 8,104                (32,188)
                  Distributions to Tribe                                                                              (88,900)                        —                     —                       —                (88,900)
                  Other cash flows provided by (used in) financing activities                                          (13,970)                   64,973                16,483                 (81,130)               (13,644)                    Cash flows provided by (used in) financing activities:
                  Net cash flows provided by (used in) financing activities                                           (147,601)                   64,973                16,483                 (81,130)              (147,275)                    Bank Credit Facility borrowings - revolving loan                                                     290,000                          —                     —                      —               290,000
                                                                                                                                                                                                                                                  Bank Credit Facility repayments - revolving loan                                                    (268,000)                         —                     —                      —              (268,000)
                  Net increase (decrease) in cash and cash equivalents                                                      4,290                  (1,469)                    —                      —                   2,821                    Line of credit borrowings                                                                            208,923                          —                     —                      —               208,923
                                                                                                                                                                                                                                                  Line of credit repayments                                                                           (203,837)                         —                     —                      —              (203,837)
                  Cash and cash equivalents at beginning of year                                                            71,504                    921                     —                      —                 72,425                     Proceeds from the issuance of long-term debt                                                         225,000                          —                     —                      —               225,000
                                                                                                                                                                                                                                                  Payments on long-term debt                                                                          (325,925)                                                                                     (325,925)
                  Cash and cash equivalents at end of year                                                     $           75,794      $            (548)     $               —      $               —       $         75,246                     Principal portion of relinquishment liability payments                                                (36,525)                       —                      —                     —                 (36,525)
                                                                                                                                                                                                                                                  Distributions to Tribe                                                                                (65,017)                       —                      —                     —                  (65,017)
                                                                                                                                                                                                                                                  Other cash flows provided by (used in) financing activities                                            (16,189)                   4,412                    175                (8,104)               (19,706)
                                                                                                                                                                                                                                                  Net cash flows provided by (used in) financing activities                                            (191,570)                    4,412                    175                (8,104)              (195,087)

                                                                                                                                                                                                                                                  Net decrease in cash and cash equivalents                                                                (12,284)                  (186)                    —                      —                 (12,470)

                                                                                                                                                                                                                                                  Cash and cash equivalents at beginning of year                                                           72,690                     574                     —                      —                 73,264

                                                                                                                                                                                                                                                  Cash and cash equivalents at end of year                                                      $          60,406      $              388     $               —       $              —        $        60,794

                                                                                                                                                                                                                                   (1) Period from date of inception (July 23, 2004) to September 30, 2004 for Mohegan Ventures-NW and Salishan-Mohegan.




64 |                                                                                                                                                                                                                                                                                                                                                                                                                                                65 |
   NOTE 18 – SUBSEQUENT EVENTS:

   SALISHAN-MOHEGAN BANk CREDIT FACILITY
   On October 17, 2006, Salishan-Mohegan entered into a $25.0 million revolving loan agreement with Bank of America (the “Salishan Credit Facility”),
   which matures on September 30, 2009. The revolving loan has no mandatory amortization provisions and is payable in full at maturity. At the option
   of Salishan-Mohegan, each advance of loan proceeds accrues interest on the basis of a base rate or on the basis of a one-month, two-month,
   three-month or six-month LIBOR, plus the applicable spread of 1.25% for base rate loans and 2.25% for LIBOR loans. The Salishan Credit Facility
   is collateralized by a lien on substantially all of the existing and future assets of Salishan-Mohegan. The obligations of Salishan-Mohegan under the
   Salishan Credit Facility are also guaranteed by the Mohegan Tribe. The Salishan Credit Facility subjects Salishan-Mohegan to a number of restrictive
   covenants, including financial and non-financial covenants customarily found in loan agreements for similar transactions.

   In exchange for the Mohegan Tribe’s guarantee of the Salishan Credit Facility, a 2.85% membership interest in Salishan-Mohegan was transferred from
   Salishan Company to the Mohegan Tribe on October 17, 2006. The amount of the membership interest transferred was approximately $197,000, reflecting
   the carrying value of the 2.85% interest. Subsequent to this transaction, Mohegan Ventures-NW holds a 49.15% membership interest, the Tribe holds a
   7.85% membership interest and Salishan Company holds a 43.0% membership interest in Salishan-Mohegan. Mohegan Ventures-NW and the Tribe
   continue to each hold one of four seats on the Board of Managers of Salishan-Mohegan.

   Immediately following the execution of the loan agreement, $10.0 million in loan proceeds were used by Salishan-Mohegan to provide a partial repayment
   of its outstanding loan balance with Mohegan Ventures-NW. Another $2.6 million in loan proceeds were used to pay off the mortgage payable discussed
   in Note 8.


   CATEGORY ONE SLOT MACHINE LICENSE
   Conditional and permanent Category One slot machine licenses were granted to Downs Racing, L.P. by the PGCB on September 27, 2006 and December
   20, 2006, respectively, for the operation of slot machines at Mohegan Sun at Pocono Downs. After the satisfaction of certain regulatory conditions and
   the payment of a one-time slot machine license fee of $50.0 million to the PGCB, the Phase I slot machine facility at Mohegan Sun at Pocono Downs was
   opened to the public on November 14, 2006. The $50.0 million letter of credit required by the PGCB was terminated upon the payment of the slot machine
   license fee on October 31, 2006.


   MOHEGAN GOLF, LLC
   In November 2006, the Authority formed a wholly-owned subsidiary, Mohegan Golf, LLC, or Mohegan Golf, to purchase, own and operate a golf course
   in southeast Connecticut. On November 21, 2006, Mohegan Golf entered into an agreement to purchase assets owned by Pautipaug Country Club,
   Incorporated, including a golf course and related facilities on land located in Sprague and Franklin, Connecticut, for $4.4 million. Closing of the acquisition
   is pending the seller’s satisfaction of certain conditions. The Authority designated Mohegan Golf as a restricted subsidiary under the Bank Credit Facility
   and certain of the indentures relating to its senior and senior subordinated notes. As a result of this designation, Mohegan Golf will be required to execute
   appropriate agreements to guarantee the Authority’s debt obligations under the Bank Credit Facility, the 2005 Senior Notes, the 2002 Senior Subordinated
   Notes, the 2003 Senior Subordinated Notes, the 2004 Senior Subordinated Notes and the 2005 Senior Subordinated Notes.




66 |
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DIVERSIFICATION

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